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  • SMSF Auditors Professional Association Stakeholder Group key messages 3 August 2021

    Online services for business

    An update was provided on the enhancements being made to Online services for business (OSB) which include:

    • the ability to enter and save auditor details so they can be selected and prepopulated when lodging Auditor Contravention Reports (ACRs) and Audit Complete Advices (ACAs)
    • the option to download and save lodged ACRs to the auditor’s device, including clear messaging on the confirmation of lodgment screen. This is in addition to the existing ability to print and save draft ACR forms
    • increasing the on-screen size of the field that captures ACR events to prevent the need to scroll as this information is entered
    • removing the functionality that automatically sets the 'year of audit' field to the current year.

    The enhancements will be delivered in line with the decommissioning of eSAT in March 2022. Auditors can now access OSB at Approved SMSF auditors in Online services for business.

    Non-Arm’s Length Income (NALI) Law Companion Ruling (LCR) 2021/2

    ATO recently published LCR 2021/2 Non-arm's length income - expenditure incurred under a non-arm's length arrangement which is underpinned by the core principle that a SMSF is required to enter all transactions on an arm’s length basis. It is acknowledged that a non-arm’s length general expense may give rise to disproportionate outcomes and a compliance approach has been included as an Appendix to the LCR to assist such circumstances. The general expenditure issue is not considered to be a significant risk that would warrant a specific compliance focus for the ATO. Our transitional compliance approach set out in PCG 2020/5 Applying the non-arm's length income provisions to 'non arm's length expenditure' - ATO compliance approach for complying superannuation entities has also been extended till 30 June 2022.

    The LCR highlights the Commissioner’s view of the NALI provisions. In response to feedback on the draft LCR, additional guidance and examples have been provided to assist trustees, including in determining the trustee’s capacity in which they are providing services, recurrent expenditure and discount policies.

    SuperStream for SMSF rollovers

    From 1 October 2021, trustees will only be able to rollover in and out of their SMSF using SuperStream.

    Feedback was provided by the group on a SuperStream news article detailing the evidence auditors are expected to check to verify trustee compliance with the rules. Auditors may need to report a regulation 6.17 contravention if they form an opinion that a SMSF trustee has not complied with the SuperStream rules for rollovers in Division 6.5.

    The Extension of SuperStream to include SMSF rollovers and auditor reporting obligations news article was published post the meeting.

    COVID-19 relief post 2021 financial year

    The views of the group were sought on extending COVID-19 relief on certain reportable contraventions for the 2019–20 and 2020–21 financial years, to the 2021–22 financial year. The four relevant areas of COVID-19 relief are:

    • providing rental relief
    • loan repayment relief
    • limited recourse borrowing (LRBA) repayment relief
    • in-house asset relief.

    Consistent with government assistance, the general view was that it was appropriate to continue to apply the COVID-19 relief where SMSF trustees found themselves having to provide or accept the four areas of relief which may or may not give rise to contraventions under the superannuation laws.

    Due to ongoing uncertainty and the likelihood that lockdowns will continue throughout 2021–22 in some States, blanket relief in relation to all four areas of relief was considered appropriate. This would also make it easier for the ATO to administer.

    SMSF Annual Return (SAR) changes in relation to Part A and managed investments

    Feedback had been sought from the group on a proposed change to Part A qualifications in the 2022 SAR. The proposed change was due to requests received to exclude Part A qualification reporting in the SAR where an auditor applies Auditing Standard ASA 402 Auditing Consideration Relating to an Entity Using a Service Organisation and finds that after obtaining an unqualified Type 2 report along with an the annual investor statement, they are still of the opinion that they do not have sufficient appropriate audit evidence in relation to material balances and transactions in the fund.

    Auditors may be able to avoid a Part A qualification where sufficient appropriate evidence is obtained in accordance with ASA 402 and Guidance Statement GS009 Auditing Self-Managed Superannuation Funds (PDF 1.25MB)This link will download a file, June 2020. It was therefore determined that the proposed change was not necessary.

    Independence

    ATO Guidance on Auditor independence was recently updated for Appropriate reviewer requirements. The guidance explains how an appropriate reviewer may use a sampling approach where independence threats arise because a firm generates a large proportion of their audit fees from one referral source.

    ATO also published a new version of the SMSF independent auditor's report (IAR) which must be used for all audits completed on or after 1 July 2021, regardless of what financial year they apply to. The new form contains two new paragraphs which highlight the need for auditors to ensure they comply with the auditor independence requirements in APES 110 Code of Ethics for Professional Accountants (including Independence standards), 2018 – effective 1 January 2020 (the Code) when conducting annual SMSF audits.

    The ATO also hosted a webinar on SMSF auditors and auditor independence after 1 July 2021. Auditors and tax professionals with SMSF clients can watch the recording of the webinar. including the question and answer session, view the transcript and download a copy of the presentation slides.

    In the 2021–22 financial year, the ATO compliance approach to independence risk will shift from education to assessing risk by using data and intelligence to identify firms who continue to provide in-house audits. Auditors who fail to comply with the new requirements may be referred to Australian Securities and Investments Commission (ASIC) for further action.

    2020–21 ATO Compliance Program update

    ATO Compliance Program for the 2021–22 financial year will include the following key areas:

    • finalising the Top 100 auditors’ program
    • reviewing high risk auditors, including auditors where our data or intelligence indicates they may be failing to meet their independence requirements and/or auditors undertaking an adequate audit
    • identifying and addressing SAN misuse.

    ATO Compliance Program outcomes for the 2020–21 financial year were impacted by COVID-19. Whilst fewer auditor compliance cases were finalised, a large proportion of auditors that were reviewed were referred to ASIC.

    Our compliance outcomes are set out below:

    Top 100 auditors

    For the 2020–21 financial year, we completed 10 audits on the Top 100 auditors, resulting in the following outcomes:

    Referral to ASIC

    6

    No further action required, fully compliant

    0

    Education outcome, due to minor deficiencies

    3

    Voluntary cancellations

    1

    Of the six auditors referred to ASIC, one was referred for independence issues relating to account preparation and was considered not to be fit and proper. All six auditors were referred for the following reasons:

    • insufficient evidence
    • not evaluating available evidence, resulting in the failure to identify potential breaches
    • not documenting their audit.

    Most of these auditors also lacked knowledge of the superannuation laws and their files lacked engagement and trustee representation letters or contained inadequate/outdated letters.

    High risk auditors

    For the 2020–21 financial year ATO completed 21 High risk audits resulting in the following outcomes:

    Referral to ASIC

    10

    No further action required, fully compliant

    0

    Education outcome, due to minor deficiencies

    6

    Voluntary cancellations

    5

    The ten auditor referrals to ASIC were for the following reasons:

    • six did not comply with independence requirements
    • four had inadequate or no audit plans
    • six had inadequate, outdated or no trustee representation and/or engagement letters
    • nine had insufficient audit evidence to support their audit opinion
    • four did not sufficiently evaluate the audit evidence
    • seven demonstrated a lack of knowledge
    • eight failed to sufficiently document the audit
    • three did not meet their CPD requirements.

    ASIC outcomes

    In relation to the 16 combined referrals to ASIC, six top 100 and ten high risk auditors during the financial year, ATO have received six outcomes from ASIC as follows:

    Disqualified

    1

    Conditions imposed

    1

    Voluntarily cancellations, including two Top 100

    4

    SAN misuse

    ATO completed 29 SAN misuse audits and reviews during the 2021 financial year, 17 of which resulted in a referral to the Tax Practitioners Board (TPB). This compares to 18 referrals in 2019–20 and eight referrals in 2018–19.

    ATO’s first AAT and prosecution decisions were received in March 2020–21. The decisions demonstrate the seriousness of SAN misuse that is found to be deliberate and sustained, as follows:

    • The AAT decision affirmed the TPB termination decision following sustained SAN misuse over 9 years in relation to Mr Ashley Cross of West Perth, WA on the grounds of misconduct and imposed a 2-year non-application period. The registration of the partnership, trading as Adamson and Cross was also terminated. This followed a TPB referral where it was found that 125 SMSF annual returns falsely declared that the SMSFs had been audited when in fact they had not been.
    • The prosecution decision involved a NSW tax agent, Mr Konstantino Koufos, who over a period of five years lodged 30 SARs on behalf of 13 clients and falsely claimed the returns had been audited. Mr Koufos was convicted and sentenced to an 18-month Community Corrections Order.

    For the 2019 SAN misuse mailout conducted in September 2020:

    • A total 68.2% of auditors responded, reporting a total of 1,327 funds for which they did not audit the 2019 SAR, connected to 594 tax agents and 17 trustees.
    • Of the 594 tax agents a total of 344 agents were connected to one instance of SAN misuse which is likely to be due to inadvertent reporting. So far 61% of tax agents have responded to our SAN misuse queries and we are in the process of analysing these responses.
    • ATO have found the risk of SAN misuse in the population of funds attached to auditor responses is decreasing and is relatively low, equating to less than 1%.

    The 2020 SAN misuse mailout is being conducted in early September 2021 and will include audits for all financial years reported on a SAR during the period 1 July 2020 and 30 June 2021. Funds will be removed from the list if an auditor has lodged an ACR and/or ACA making lists easier to review.

    Disqualified trustees

    ATO conducted a review of disqualified trustees who were reported on SARs for a particular financial year and for which an accompanying ACR was not lodged. The review showed that a number of disqualified trustees continued to be recorded as fund members even though the individual is listed on the disqualified trustees registerExternal Link and the auditor had failed to lodge an ACR to report a section 126K contravention.

    A news article Reminder for SMSF auditors to check disqualified trustees register, was published to inform auditors to check the register on our website, as part of their annual audit.

    Auditing and Assurance Standards Board update

    The Auditing and Assurance Standards Board (AUASB) has a new websiteExternal Link which includes a standards portal with a powerful search capability and the ability to quickly promote new and updated standards. The next stage of the project is to add Guidance Statements to the portal.

    In March 2021, the AUASB approved auditing standards ASQM 1 and 2. The auditing standards are operative from December 2022. ASQM 1 Quality Management for Firms that Perform Audits or Reviews of Financial Reports and Other Financial Information, or Other Assurance or Related Services Engagements is referenced in the new version of the SMSF IAR and the footnotes provide the operative date.

    The International Auditing and Assurance Standards Board (IAASB) is developing an Exposure Draft for consultation on Audits of Less Complex Entities. Local jurisdictions will be able to modify its application to their jurisdiction however it is not known if it will impact SMSFs.

    Australian Securities and Investments Commission update

    ASIC has been receiving registration applications from prospective auditors many of whom had gained their experience performing in-house audits. Conditions have been imposed on some of these auditors restricting their ability to perform any audits in-house. ASIC has also seen firms changing their business models to comply with the independence requirements by outsourcing work and changing their structures.

    ASIC is planning a compliance program for outstanding annual statements due to growing non-compliance.

    Other business

    Disqualified trustees register

    The group suggested the ATO should be advising auditors if a client has been disqualified. It was also suggested removing the requirement to report a section 126K contravention from the ACR.

    Action item

    Disclosure to auditors of disqualified trustees and requirement for s126K reporting

    Due date

    October 2021

    Responsibility

    ATO

    Action item details

    ATO to consider whether we are able to disclose a disqualification on our register to an auditor and/or whether we will remove section 126K from the Auditor/actuary contravention report.

    Regulation 4.09A

    The group suggested that it appears that ATO’s guidance on reporting a regulation 4.09A contravention goes further than the requirements of the SISR where a fund has a corporate trustee and an investment is held in the name(s) of one or more individual members on behalf of the fund.

    Action item

    Regulation 4.09A guidance

    Due date

    October 2021

    Responsibility

    ATO

    Action item details

    ATO to consider whether regulation 4.09A guidance needs to be amended.

      Last modified: 16 Sep 2021QC 66798