Audit fees for small pension funds to be capped

Recommendations for changes to section 15 of the Pension Fund Act have been submitted to Parliament, which will include limiting the cost of audit fees for small funds. The recommendations were made by a sub-committee which is part of the South African Institute of Chartered Accountants’ (SAICA) Retirement Funds Project group, which in conjunction with the Financial Services Board (FSB) was tasked with revising this section.

The classification limits of pension funds were one of the major issues under discussion. In 2008, the FSB revised the classification limits of pension funds as: large fundsto an asset value exceeding R50m; small funds to an asset value between R6m and R50m and audit exempt funds to an asset value less than R6m (Board Notice 99 of 2008). No changes were made to the prescribed financial statements as per Annexure A to F (Board Notice 43 of 2006).

“In the past small funds had to comply with the prescribed financial statements set out in Annexure C or D (Board Notice 43 of 2006), depending on whether the funds were privately administered funds or insured funds. Schedule D, contained in the above annexures, refers to the audit report to be issued and requires that a limited assurance review be done on small funds,” explains Ronel van Graan, a member of the project who worked closely with the FSB on the amendments and a partner at Deloitte.

Van Graan says that the amendments were largely due to discussions held between the FSB and SAICA. “It came to light that the limited assurance review required for small funds will result in more or less the same audit fee as the current full scope audit report. The members of the small funds will therefore end up paying just as much for this type of report as for a full scope report. It was therefore recommended that schedule D be scrapped altogether.” Note that on a member to member basis the cost of audits for small funds would have been significantly higher for small funds than for large funds.

Van Graan says one of the overriding aims of the project group, with the input from the FSB, was what could be done to limit the cost of auditing for members of small funds as well as how to assist in the backlog of the 2006 to 2008 funds that has not yet been submitted to the FSB.The group, she says, finally decided that the current Section 15 report should be revised to take account of the highest potential risk areas for the FSB.

“This is also just an interim measure until 2010 when all funds will be revisited again. In the long run the FSB wants all funds to be audited, but recognises the current problems in the industry,” she explains. The FSB hopes that by this time the industry would be consolidated and small funds would have moved to umbrella funds.

Yusuf Dukander, Project Director: Financial Services at SAICA says the new amendments will bring relief to smaller funds in the medium term. They will allow all stakeholders (Boards of Trustees, administrators and auditors) to speed up the process of clearing the back log of funds that still need to submit annual financial statements to the FSB.

“Small retirement funds should utilise these amendments, and the indicated timeframe in which they are going to be applicable, to consider changing to umbrella funds. By doing so, they will avoid future significant costs of audits to members when the “grace period” for not submitting audited financial statements in 2010 expires’” concludes Dukander.