Can Stakeholders be Satisfied with Accountants’ Education to Act as Advisors to Self-Managed Superannuation Funds

Currently, recognised accountants are exempted from holding an AFS licence, so that they can advise on the establishment, operation, structuring and valuation of a SMSF (Durie, 2006). Additionally, pursuant to this exemption accountants can provide advice on taxation issues of a SMSF (Regulation 7.1.29A(4)). There is some protection for accountants who provide financial product advice in the course of advising about the tax implications provided no benefit (such as fee or commission) is received as a result of the client purchasing a financial product, and for retail clients there is an appropriate written notification (Regulation 7.1.29).

This exemption is restricted and accountants need to be cautious as to whether they technically fall within it. Part of the confusion is that while an accountant could recommend a client to set-up an SMSF, they could not recommend a superannuation fund other than a SMSF (CPAA, 2014, p. 5). Also, while they can ‘process’ a rollover of funds into a SMSF or advise on operational issues, they can’t ‘recommend’ a client rollover or switch into a SMSF or provide advice in relation to particular assets or investment strategies (CPAA, 2014, p. 5).

The current standard can be seen as deficient due to its ambiguity and how it could lead to incomplete advice. Westover of the CAANZ acknowledges that the exemption has “been quite a grey area” (Westover, 2014, p. 2). When looking at the reasons provided by the government for the new licence regime, it was couched in part in positive terms by indicating that licencing would enable accountants (once licenced) to be able to advise on a wider range of alternatives (Shorten, 2012). The biggest concern of the current standard appears to be that it can lead to incomplete advice (Cain, 2015, p. 62 quoting Twentyman). That is, accountants’ SMSF advice (and the necessary limitations that the exemption imposes on them) may be ‘lopsided’, as their advice cannot be comprehensive as they would not be allowed to discuss the merits of investment strategies of SMSFs compared to other financial products (ES, 2013, para. [9]).

Education was another area of concern, particularly as it relates to ‘consumer protection concerns’, as accountants are not required to maintain the “competence of employees and ensuring they are adequately trained” (ES, 2013, para. [7]). The licence reforms are stated to be necessary to achieve the goals of the Financial Services Reform Act 2001 (Cth), particularly the advice coming from people “required to be familiar with, educated upon” about the area the advice concerns (ES, 2013, para. [7]). Westover argues that the success of SMSF compliance lies largely with the skills of professional advisors (Westover, 2014, para. [7]). The Cooper Review confirms Westover’s argument that education should focus on SMSF professional advisors who are required to attain and maintain a minimal level of SMSF competency (Cooper Review, 2010, p. 230).

Another concern was the disparity of licencing requirements between accountants and the other major sources of advice to set up SMSFs, namely, financial advisors who are required to have a licence with the requisite education requirements, whereas accountants do not (ES, 2013, para. [11]).

Also concerns were raised about whether accountants were revenue raising when recommending a client to set-up a SMSF. It was alleged that an accountant may “gain significant revenue” from the formation of a SMSF and the consequential professional services advice, such as audit and compliance work (ES, 2013, para. [10]).

Overall the limited accountants’ exemption could be perceived as a deficient standard.

In response to concerns about the limited exemption a new licence regime was implemented to commence July 2016 by the Corporations Amendment Regulation 2013 (No. 3). The new licence regime will mean that accountants have three options: a limited AFS licence, full AFS licence or being an authorised representative under another entity’s AFS licence. The limited licence still allows accountants to give structuring advice with respect to SMSFs.

Also, there are transitional arrangements for recognised accountants who apply for an AFS Licence prior to 1 July 2016 and only provide ‘advice’; they need not demonstrate the ‘experience requirement’ (Corporations Regulations 2001, regulation 7.6.01BA(2)). This restricted advice relates to: (a) advice to acquire (or not) or to dispose of a SMSF; (b) whether to establish a SMSF, advice about contributions or pensions from superannuation; and (c) class of product advice on superannuation, securities, simple managed investment schemes, general and life insurance products and basic deposit products (s 912A(4) Corporations Act 2001 (Cth)). Accountants seeking registration after 1 July 2016 will be required to meet the experience requirements to obtain a licence (ES, 2013, para. [25]).

It appears that this restricted licence was created to address concerns from accountants about costs involved in obtaining a full AFS licence in providing financial advice (ES, 2013, para. [16]).

An alternative for an accountant is to maintain a full AFS licence, or obtain a limited, strategic or full authority through an existing AFS licensee (Holman, 2014). Such an authority means that back office licensing, maintenance and operations regarding compliance, audits, responsible managers, policies and procedures is maintained by an existing AFS licence holder (Holman, 2014). However, Charlton emphasises if being a licensee it is important for accountants to provide “integrity and independent thinking” (Cain, 2015, p. 60 quoting Charlton). Overall these new standards provide for greater initial and ongoing education for accountants to advise about SMSFs. To what extent accountants already receive formal education about SMSFs is now considered.

Following Thompson’s methodology (1998) a quantitative survey was conducted of Australian undergraduate accounting degrees in 2013 to elicit the time spent on teaching the various business structures (including SMSFs). While the general results of this survey are reported elsewhere (Freudenberg and Boccabella, 2014), this article will analyse the in-depth results relevant to SMSFs.

The survey explored the coverage of SMSFs in the various law courses likely to be taught within an accounting degree, as it would be expected that it would be these courses that would cover SMSFs. However, other accounting courses were also surveyed as well to explore if there was coverage in them. Questions explored the inclusion of SMSFs in course content, lectures, tutorials and assessment. A total of 154 Australian academics commenced the survey with 138 completing it entirely. One hundred and ten of these survey respondents were those teaching into ‘business law courses’ and 28 were respondents teaching into other ‘accounting courses’. The sample is well distributed in terms of universities across Australia – with participants from 36 Australian institutions.

In terms of business law courses the survey specified the types of courses likely to be taught, as well as the option for participants noting an ‘other business law course’. Through this it became evident that five business law courses were generally mandatory (note it is likely that within each accounting degree there is only three or four mandatory business law courses, but their names can vary).

Table 1 lists the five common mandatory courses, being:

Introduction to Law/Foundations of Law (‘Intro to Law’);

The other non-mandatory (elective) business law courses (also listed in Table 1) tended to be:

Company/Corporations Law – Advanced (‘Advanced Company’);

In terms of discussing SMSFs in lectures the results indicate that greater than 90% of mandatory business law courses and accounting courses, either did not cover or spent less than five minutes discussing them: Table 2. On average only 4.5% of mandatory business law courses and 7.2% of accounting courses spent between 30 minutes and five hours teaching SMSFs in lectures. None of these courses spent greater than five hours teaching SMSFs in lectures.

There was a greater chance of accounting students being exposed to SMSFs through elective business law courses, as on average 18.5% of these courses spent 30 minutes to five hours in lectures discussing them. The courses more likely to include SMSF coverage were the two tax courses (Tax and Advanced Tax.)

In terms of what students were taught in these lectures for the mandatory business law courses there was an emphasis on (a) Distributions from fund; (b) Taxation of fund contributions, profits and distributions; and (c) Delay of access to funds: Table 3. For elective business law courses, there was a greater spread of emphasis, although taxation received the greatest attention.

In comparison the accounting courses concentrated on (a) nature of and governing law; (b) formalities; and (c) liability issues (members/controllers).

In terms of whether accounting students have a further opportunity to workshop the issues surrounding SMSFs in tutorials, greater than 90% of mandatory business law courses and accounting courses either did not cover SMSFs in tutorials or spent less than 5 minutes: Table 4. Only approximately 4% of these courses spent substantial tutorial time (30 minutes to 2 hours) on SMSFs. Again the elective business law courses (especially Advanced Tax) had a greater focus on SMSFs in tutorials, with approximately 41% spending greater than 30 minutes discussing them.

Considering whether accounting students were assessed on their SMSF knowledge, it becomes apparent that this largely does not occur. 100% of accounting courses surveyed, and 96% of the mandatory business law courses had no or less than 5% of assessment directed towards SMSFs: Table 5. The only elective business law course with substantial assessment towards SMSFs was Advanced Tax with an average of 17% of courses having 5% to 20% of assessment directed towards SMSFs, and 8% of courses with greater than 20%.

Overall this data demonstrates that Australian accounting students have minimal, if any, exposure to SMSFs in their undergraduate degrees. This is especially the situation if they do not do the elective ‘Advanced Tax’. However, this perceived deficiency may be addressed in later post-graduate education especially that provided by the leading accounting professional bodies.

To ascertain whether accountants are likely to be exposed to SMSFs during their post-graduate studies a review of the education courses required for professional membership of the two major professional accounting bodies was undertaken (CPAA and CAANZ).

Pursuant to the CPA Program there are four compulsory subjects, two electives and a practical component that is required. The compulsory subjects are ethics & governance, financial reporting, strategic management accounting and global strategy and leadership (CPAA, 2014b). Also, the two courses ‘advanced taxation’ and ‘advanced audit and assurance’ are compulsory if taxation law and auditing are not completed at the undergraduate level (which may be possible at some universities). Otherwise the electives include financial risk management and contemporary business issues. In all of these courses, including the advanced taxation course, there is no coverage of superannuation, let alone SMSFs. This would suggest that the expectation of what a member of CPAA could achieve in terms of SMSFs is low given their likely limited exposure to SMSFs throughout their formal undergraduate and post-graduate studies.

In terms of the CAANZ Program it has five courses: audit and assurance, financial accounting and reporting, management accounting and applied finance, taxation and a capstone course. For the CAANZ tax module there is one unit devoted to superannuation which focuses on Australia’s superannuation system broadly, with only a brief mention of SMSFs. Indeed, in 22 pages of the superannuation unit the term ‘SMSF’ is only mentioned eight times. Out of the 27 hours of teaching provided for the CAANZ tax module four hours are allocated to the taxation of superannuation funds. Consequently, the expectation of CAANZ members in terms of SMSFs should be greater than that for CPAA members given they are likely to have more exposure to SMSFs. It should also be remembered that a member of CAANZ is required to have completed a taxation course within their undergraduate degree, whereas for CPAA, this is optional.

It appears for accountants to advise on SMSFs that this is a specialised area and accountants would need further study whether through attending seminars or stand-alone courses. Implicitly the professional accounting bodies have acknowledged that their members’ knowledge and understanding of SMSFs may be lacking. Since the Cooper Review into the superannuation system there has been an increase in training efforts, especially since the licence reforms were legislated. For example, the CAANZ stated that since the review they have “made significant contributions”… “through provision of training events including major SMSF conferences, publications, manuals, tools, checklists and formal guidance” (CAANZ, 2014, p. 18). While this is good progress, it does bring into question the adequacy of training and materials prior to the licencing changing. Also, CAANZ notes that it has recently brought in a ‘CA SMSF specialisation’ which includes mandatory education, assessment and experience requirements (CAANZ, 2014, p. 18). Similarly, CPAA has recently brought in a SMSF specialisation (CPAA, 2015). It appears that the government reforms have caused the professional bodies to increase activity in this area. For example CPAA provides a SMSF Learning Manual (Twin Pack) which is equivalent to 24 hours continuing professional development (CPD), covering Understanding SMSFs and SMSF strategies. More recently CPAA introduced a SMSF Specialisation with the first intake occurring in 2015 (CPAA, 2015).

Also, CPAA organised a one day SMSF conference and expo in 2015. CAANZ has a number of online and in-person workshops held for members in terms of SMSFs, including SMSF and property development, bankruptcy and SMSFs and advanced pensions.