The size, cost, asset allocation and audit attributes of Australian self-managed superannnuation funds
- Publication Type:
- Thesis
- Issue Date:
- 2014
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Using proprietary Australian Tax Office (ATO) data, this thesis documents the size, asset allocation and expenses incurred for a large sample of Australian self-managed superannuation funds (SMSFs) for the three fiscal years to June 2010. Further, it examines auditor industry specialisation, professional brand effects and auditor independence implications in the SMSF market. The analysis provides new insights into the fastest growing and largest segment of the Australian $1.8 trillion retirement savings industry by complementing and extending prior superannuation studies of both small and large APRA funds to SMSFs. Two recent Government reviews have highlighted a lack of basic descriptive knowledge of the costs associated with running an SMSF. As a result, I develop an SMSF Costs Matrix - across five different model portfolios - to assist gaining a greater understanding of the annual operating costs of an SMSF in accordance with its investment strategy. As expected, I observe that SMSFs enjoy economies of scale in relation to running costs, with the annual median cost being approximately half those of industry and retail funds. I estimate that the relatively low-cost structure of SMSFs may have a positive impact on the final retirement balance for a model portfolio when compared with the fees of two other types of superannuation funds.
In terms of economics of auditing implications, when I consider the impact of industry specialisation, after controlling for factors known to determine audit fees, I find evidence of fee discounting by the leading suppliers of SMSF audits. This finding is consistent with Simunic (1980)’s assertion of competition in the small audit client market. However, when the dependent variable is redefined to the total ‘bundle’ of services (including audit and non-audit fees), most industry leaders are shown to earn a fee premium. This finding suggests that industry specialists price strategically and use audits as a conduit to supply higher margin non-audit services (NAS). In terms of auditor independence, the supply of NAS is shown to improve the auditors’ ability to report breaches, suggesting no independence concerns arising from joint supply of audit and NAS. Last, I find evidence of audit fee premiums for auditors with higher quality professional affiliations who are required to comply with auditing and ethical standards.
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