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  • SMSF Auditors Professional Association Stakeholder Group key messages 5 December 2019

    Technical discussion and form changes

    ATO trustee diversification letters/quality of investment strategy advice

    The guidance we drafted is as a result of feedback from the clients of some tax agents who received our diversification letter. The questions raised in the guidance are questions their clients seek answers to. Additional feedback and comments on the guidance was requested by 20 December.

    This action item was completed and the guidance published 17 February.

    The discussion included some of the challenges for auditors in trying to improve the quality of investment strategies. One of the concerns was the use of ranges of 0 to 100% which can no longer be used to address the investment strategy requirements on their own. It was acknowledged however that 0 to 100% asset ranges can be used as part of an investment strategy that details which investments plan to be made and how they go towards meeting the members’ retirement objectives.

    Top 100 article

    The draft article was presented to stakeholders for their feedback. The aim of publishing the article is to increase awareness of auditor obligations. Concerns were raised among stakeholders about the number of high volume auditors who did not have signed financial statements on their audit files.

    This action item was completed and the article published 12 December.

    Proposed changes to Independent Audit Report (IAR) for 2020 income year

    It was agreed to discuss the changes proposed by CA ANZ and CPA outside of this forum. A meeting would be arranged early in 2020 and include representation from the AUASB.

    The meeting was held on Tuesday 4 February.

    Part A reporting

    The SMSF annual return (SAR) for the 2019 income year was changed requiring Part A qualifications to be reported as well as Part A qualifications that were not rectified. The SAR for the 2020 income year will be changed so that we are no longer asking whether the Part A qualification was rectified or not. We will only ask whether a Part B qualification was rectified. We also intend to change the SAR instructions to once again say that Part A qualifications that result from the auditor being unable to determine the opening balance of the fund do not have to be reported.

    The stakeholders confirmed the view that there is insufficient evidence of member balances for new engagements when a fund has multiple members, resulting in a Part A qualification, as required by the auditing standards. The change to the SAR for the 2020 income year will eliminate the need to report in the SAR in these circumstances.

    Audit fee reporting

    Audit fees are reported on the SAR and the label is often left blank. A mail out to 10 tax agents and 50 other industry participants found that trustees generally receive one tax invoice which may cover a number of services. The audit fee is instead, often reported as part of the total administration expense on the SAR. A breakdown of administration expense showed that the audit fee charged may be as low as $110 which raises concerns about audit quality. The SAR for the 2020 income year may be changed to make the audit fee a mandatory label.

    Future of eSAT and eSAT reference material

    Electronic Superannuation Audit tool (eSAT)

    eSAT is a legacy downloadable software tool that has suffered recent compatibility issues. Auditors should have received an email and seen a recent article. The email and article provided that eSAT doesn’t accept the latest Apple upgrade. The latest operating system upgrade, called Catalina is unable to run 32-bit software, of which the eSAT application is one. However even for Apple users who have not upgraded to the latest version of their Apple operating system there are still issues with Java. eSAT will not function with any Java version above 1.8. Older versions, in particular version 1.8 may still work.

    As a result, we're looking to improve our digital services for SMSF auditors to address these issues and provide a more contemporary digital experience for the lodgment of Auditor/Actuary Contravention Reports (ACRs) and Audit Completion Advices (ACAs).

    On 18 December 2019 approval was received to move eSAT to Online Services for Business. The planned date for the move is December 2020.

    Feedback from the current users of eSAT was requested in relation to the design of the new system and user interface. Auditors were required to email: ATOSMSFauditorteam@ato.gov.au by 6 January 2020 if they were interested in being involved.

    eSAT reference material

    We received feedback from auditors on the value of maintaining eSAT reference material which was largely positive.

    A review of the reference material determined that the content was covered by the ACR instructions and other guidance on our website. A decision was made to remove the reference material by 31 March 2020.

    It has since been decided that the maintenance of the eSAT reference material will be extended to cover the period that the eSAT software tool is in use. Notification of updates will be provided through eSAT bulletins. It is now planned that the eSAT reference material will be removed by end of March 2021.

    Current ATO compliance program and treatments

    Top 100 auditors

    For the 2020 income year, as at 29 November 2019 we have finalised 15 Top 100 auditor cases. The results of the 15 finalised audits are as follows:

    Referred to ASIC

    2

    No further action required (fully compliant)

    0

    Education outcome

    13

    The two auditors referred to ASIC had not complied with the auditing standards with respect to:

    • audit plans
    • engagement/trustee representation letters
    • obtaining sufficient audit evidence
    • evaluating the evidence
    • documenting the audit.

    The two auditors also demonstrated a lack of knowledge of the legislation as a number of potential breaches were identified. One of these auditors was found not to have met the CPD requirements and did not provide the IAR in the approved form.

    High risk auditors

    For the 2020 income year, as at 29 November 2019 we completed 29 high risk audits which resulted in:

    Referred to ASIC

    14

    No further action required (fully compliant)

    0

    Voluntary cancellations

    7

    Education outcome

    8

    SMSF auditor number (SAN) misuse

    In July 2019, we reported the preliminary findings of our mail out to SMSF auditors whose SAN was reported on SMSF annual returns for the 2017 income year which included that:

    • we had received 2,739 responses from auditors, a 50% response rate; and
    • 420 auditors confirmed 1445 instances of SAN misuse connected to 1685 funds and 626 tax agents.

    In September 2019, we contacted the tax agents who had prepared the 2017 annual returns to determine whether the misuse was deliberate or inadvertent. We followed this up with a reminder in December 2019, to those that had not responded and are now analysing the results of that process. Tax agents (TAGs) who still have not responded to our information request will be referred to the Tax Practitioners Board (TPB) for further action.

    Where deliberate SAN misuse has been identified, the TAG has been referred to the TPB. As at 29 November 2019, we have referred 9 tax agents to the TPB.

    In October 2019, we completed a second mail out SMSF auditors providing them with a list of funds who reported their SAN on SMSF annual returns for the 2018 income year. We are now in the process of analysing the results.

    Auditors performing no audits for five years

    In May 2019 we undertook a mail out where we issued 109 letters to auditors who had not undertaken any audits in the last five years. These auditors are considered a risk because they might start auditing again and no longer have the relevant knowledge and skills to complete SMSF audits.

    The results as at 29 November 2019 are as follows:

    Retained registration

    29

    Voluntary cancellations

    36

    Referral to ASIC

    15

    Awaiting more information

    4

    No response following a reminder

    25

    Potentially there could be up to 44 referrals to ASIC. Discussion with ASIC on these auditors are ongoing.

    Overdue lodgments

    In November 2018 we undertook the first mail out to 570 auditors with outstanding lodgments relating to their own SMSF, some going back a number of years. A total of 363 auditors in this population have since lodged, 19 auditors have wound up their funds and 188 auditors have not responded. We have risk assessed those who have not responded and have loaded 72 cases considered high risk for compliance activities.

    In September 2019 we undertook a further mail out to 262 auditors which were part of a new population of auditors with outstanding lodgements for the 2018 income year. A total of 108 auditors in this population have since lodged, one has wound up their fund and 153 auditors have not responded.

    The total number of auditors with outstanding lodgments as at 29 November 2019 is currently 341. Most of these auditors are also registered tax agents and 69 are auditors only. We are working with the TPB and ASIC to progress these.

    ASIC update

    ASIC advised that the annual CPA quality review workshop was very beneficial due to the overlap between the work of ASIC, the ATO and CPA. The workshop is aimed at sharing information and it is planned that CA ANZ would attend the next meeting. It was noted that other professional associations including the IPA and the ATMA also perform quality reviews of their members' work.

    ASIC's quarterly media release is due to issue early in 2020. The media release will include names of auditors who have been disqualified and those who have had conditions imposed on their registration.

    Auditing and Assurance Standards Board (AUASB) update

    The AUASB advised that the auditor needs to exercise professional judgement to determine what documents and in particular whether bank statements need to be obtained to meet evidentiary requirements in performing an SMSF audit. Auditing Standard ASA 500 Audit Evidence is not explicit on this matter. Under the hierarchy of evidence, enquiry alone about the existence of bank statements is not sufficient however documenting that bank statements have been sighted is potentially sufficient.

    It was confirmed that the current Parliamentary Inquiry into conflict of interest and audit quality affects the big end of town and not SMSFs. It was acknowledged however that high volume auditors may be impacted by matters raised in relation to offshore servicing and better practices on the use of technology.

    A contractor has been engaged to work on the update of GS009 and the project plan is being finalised. The project is being led by Marina Michalides. A list of all the updates required has been collated and a meeting to discuss these is planned. The project has been endorsed by the Board and a presentation will be made to them in March 2020. The Board has noted that the nature and scope of audit work that is performed electronically is not covered in the submissions received and needs to be incorporated in to the GS009 update. The Board is aware of the use of technology among SMSF auditors and more guidance is required on issues such as aggregators and artificial intelligence used as evidence. A link to the AUASB's board papersExternal Link on GS009 can be found. As GS009 is about applying the auditing standards and doesn’t override them, the rewrite of GS009 may also necessitate an update to:

    • Auditing Standard ASA 500 Audit Evidence; and
    • Auditing Standard ASA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment.

    Feedback on the impact of technology on an SMSF audit to be considered as part of the update of GS009 or any other aspect of GS009 was required by 31 January 2020, to enquiries@auasb.gov.au.

    Annual Check-ins

    A greater emphasis will be placed on assessing committee effectiveness in 2020 and stakeholders may be contacted to provide feedback.

      Last modified: 23 Apr 2020QC 62293