SMSF Auditors Professional Association Stakeholder Group key messages 8 December 2020
Online services for business
An overview of Online services for business, which is the new platform that will replace eSAT was provided. The new service commenced public beta testing on 20 January 2021.
Positive feedback was received from auditors and other participants involved in private beta testing.
A demonstration of Auditor contravention report and Audit Complete Advice (ACA) lodgments was also provided.
To support auditors through this change:
- online services for business, online video tutorials and communications will be available
- eSAT will run in parallel until it is decommissioned later in the year.
Update on legislative instrument on rental deferrals
The SMSF (COVID-19 Rental income deferrals – In-house Asset Exclusion) determination has now been registered.
- Applies to rental deferrals due to the financial impacts of COVID–19 which amount to a loan under the super laws and can cause the SMSF to acquire and hold an in-house asset (IHA). This would generally mean the fund would need to dispose of the IHA before the next financial year where it exceeds the 5% threshold.
- States for the purposes of paragraph 71(1)(f) of the Superannuation Industry (Supervision) Act 1993, the resulting asset is not an IHA of the fund for the 2019–20 and/or 2020–21 years being the year or years of the relevant rental income deferral nor any future financial years where certain requirements are met.
Real property valuations
The group was thanked for providing feedback on the October news article that provided further clarification in relation to Preparing to lodge your SAR - valuing your assets.
Some group members expressed concern about kerb side appraisals not being sufficient evidence on their own particularly since real estate agents would have to rely on comparable sales data, even if the particulars of those sales were not documented within the appraisal.
The discussion was concluded on the basis that if the real estate agent is reluctant to provide comparable sales, then obtaining this data from other sources would be acceptable. There are several websites that can be used to extract comparable sales data.
It was also confirmed that when reviewing an audit file, we will consider what attempts have been made to obtain comparable sales data and will allow for situations where the auditor documents acceptable reasons in the file as to why the data couldn’t be obtained. It is generally only where no attempt has been made to obtain sufficient evidence that the ATO may refer an auditor to ASIC.
New independence guide and its impact on in-house audits
The group was thanked for providing feedback on the news article published in October Our compliance approach to the new Independence Guide and in-house SMSF audits. Our initial plan was to write to all auditors by the end of the year providing them with further guidance on our approach. We have since determined it is more appropriate to provide a dedicated auditor independence page on ato.gov au that can be updated quickly as required.
Group members were generally positive about the draft independence guidance adding that more information is needed on in-house audits and referral sources. Auditors were seeking a clear answer to the number of referral sources that creates an independence threat. It was acknowledged there is no clear number as it depends on the overall structure of the auditor's firm and whether it's well established or not. Auditors should assess their individual circumstances including the other services they provide to determine whether they are meeting the independence requirements.
Referral fee issues were discussed with group members raising the following points:
- Whether the 15% threshold used by firms to disclose any potential threats to audit clients that are public interest entities (PIEs) (see R410.4 of APES 110, Code of Ethics), could be used as a benchmark for referral fees relating to SMSF clients.
- Some auditors in the group said they follow a client acceptance process which uses a 20% professional standard to assess fee dependency risk. A threshold higher than 20% may expose the firm to a significant business risk if the client is lost. The threshold used must consider the stage of the firm, for example a new firm may not be able to adhere to a low threshold as it takes time to develop a spread of clients.
- The International Ethics Standards Board for Accountants (IESBA) considered a 30% threshold for non-PIEs (i.e, SMSF audit clients) in the IESBA’s Exposure Draft Proposed Revisions to the Fee-related Provisions of the Code (Fees Exposure Draft). Earlier in 2020, the Accounting Professional & Ethical Standards Board (APESB) recommended removing the proposed threshold for non-PIE audit clients and replacing it with the same threshold as PIEs (15%). The ATO advised it will follow up with the APESB on what threshold was decided for non-PIEs in the Exposure Draft.
It was agreed that to meet the independence requirements, auditors must use their professional judgement when restructuring. This includes taking into account the operations of the whole firm and the fees generated from the different activities.
In most circumstances, the ATO is unable to provide certainty about specific arrangements without undertaking a detailed analysis of a firm's engagement with the audit client. We would generally only do this as part of a compliance audit or review.
IESBA’s Exposure Draft Proposed Revisions to the Fee Related provisions of the Code.
Action item details
The ATO has requested the APESB to provide an update on the status of IESBA’s Exposure Draft Proposed Revisions to the Fee Related provisions of the Code. We plan to email stakeholders with details when the APESB provide a status update.
Other technical discussion points
Feedback was sought from the group on behalf of the Auditing and Assurance Standards Board regarding Guidance Statement GS 009External Link Auditing SMSFs, issued in June 2020. Group members advised that the consultation process for the revision of GS009 went well. We reminded the group that the eSAT reference material has been incorporated in GS009 and ATO web content and will be removed upon the decommissioning of eSAT.
2020–21 ATO compliance program update
Our compliance program for the 2020–21 income year continues to include the four key areas:
- Top 100 Auditors (including an extension to the Top 200 auditors)
- high risk auditors
- SAN misuse
- reciprocal auditing arrangements.
We are unable to provide an update on compliance program outcomes for the 2020–21 income year in relation to the Top 100 and high risk auditor outcomes as there has been a pause due to the reallocation of resources to COVID-19 related support. Recently, resources have started moving back to SMSF compliance activities including the SMSF auditors' program.
Other compliance outcomes are set out below:
Reciprocal auditing arrangements
We reported at the last meeting we have re-commenced our work on reciprocal auditing arrangements,(arrangements where two auditors with their own SMSFs agree to audit each other’s funds) following lodgment of the 2019 SMSF annual return (SAR).
A news article was published in December 2018 warning against these arrangements and a targeted mailout to 622 auditors was issued in March 2019. Post lodgment of the 2019 SAR we identified only 18 auditors who were continuing to participate in these arrangements.
Our mail out campaign was quite effective in reducing this auditor population from 622 to 317 and then to 18. As one of these auditors is subject to a current compliance review, a letter was issued to the remaining 17 auditors on 1 October 2020 requesting they explain why they were still in the arrangement. Of the 15 who responded, none were able to provide sufficient reasons as to why they should not be referred to Australian Securities and Investments Commission (ASIC). We are now working with ASIC to progress these.
SMSF auditor number (SAN) misuse
There is no update available on SAN misuse audits and reviews due to the commitment to dealing with COVID-19 measures.
In September 2020, we finalised our third SAN misuse mailout. All SMSF auditors who reported their SAN on the 2019 SAR were issued a client list which included columns for the date the audit was completed and whether an ACA was lodged. As at 26 November 2020:
- A response rate of 42.61% was achieved which included 208 auditors who found one or more funds in their client list which they did not complete an audit on, resulting in 755 instances of SAN misuse involving 382 tax agents.
- These 755 instances of SAN misuse will now be investigated to determine whether the reporting was inadvertent or deliberate.
- Audit completion dates for 764 have been revised to after the date of lodgment of the 2019 SAR.
With regards to referrals to the Tax Practitioners Board (TPB), we have now referred a total of 30 tax agents for deliberate SAN misuse over the last three income years which consists of eight in 2018–19, 20 in 2019–20 and two in 2020–21.
As at 26 November 2020, the TPB have actioned 20 of those referrals resulting in some good outcomes, with five tax agents deregistered and one voluntary deregistration. We have also seen:
- Three suspensions
- Two administrative sanctions and 5 written cautions for breaches of the of the Tax Agent Services Act 2009 (TASA) Code of Professional Conduct.
Of the 74 tax agents we referred to the TPB in April 2020 for not engaging with our mail out asking why an incorrect SAN was reported for the 2017 income year, the TPB took the following action:
- Fifty-one were found not to have breached the TASA
- Twenty-two were issued with show cause letters with 14 receiving education orders and eight still under review pending further information
- One did not engage with the TPB.
We also plan to refer to the TPB, the tax agents that didn’t respond to our 2018 mailout as well as those who have arranged or are in the process of arranging an audit after lodgment of the fund’s return.
So over the course of our three mailouts we have seen a fall in instances of SAN misuse (from 1445 in 2017 to 832 in 2018 to 755 in 2019) however we rely on auditors to respond to our mailouts and with only 40-50% or so responding, we cannot confirm an audit has been carried out for about half of the SMSF population. As such, we are introducing a bulk ACA template tool into Online services for business which will hopefully make it easier for auditors to complete an ACA and also provide us with greater reassurance that an audit has been carried out.
Currently we are only able to assure that about 250,000 funds are receiving an audit. We are hoping auditors will use the bulk ACA template in Online services for business to confirm audits completed, as this should make it easier. Lodging multiple ACAs in the bulk template could also be used if ACA reporting became mandatory.
The group was asked their preference around the timing of ACA lodgments, if it became mandatory. Some group members advised monthly or even annual reporting via a bulk template will make it easier for them to lodge ACAs. Monthly reporting is preferred by the ATO as it will allow for real time SAN misuse to be identified.
Another view was that to allow real time ACA reporting and SAN misuse identification, it would be easier if ACA reporting was integrated into auditors' software.
- fewer referrals had been received from the ATO in the 2020–21 income year due to its paused compliance program
- some cases escalated internally have been actioned, mainly relating to registration applications and supervisor concerns It was noted that any in-house audits are considered as part of the work experience requirement for registration applications
- no media releases have issued recently
- most case outcomes have involved the acceptance of voluntary cancellations.
The SMSF Association has received feedback from members about the rule that SMSFs need to prepare their financial statements 45 days before lodgment.
They advised it would be difficult for the auditor to verify compliance with the rule and it could be difficult for those funds on early lodgement cycles to meet the timeframe.
It was suggested the ATO should start imposing late lodgment penalties on SMSF trustees as removing funds from Super Fund Lookup was of no consequence for some SMSFs.
Post the meeting the regulations for the Treasury Laws Amendment (2020 Measures No 6) Bill 2020External Link were registered and no longer contain the proposed 45 day rule.
Summary of key topics discussed at the SMSF Auditors Professional Association Stakeholder Group Meeting on 8 December 2020.