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  • 22 November 2018

    Current Status of P2P Service

    Super P2P service is not declining as reported in the last meeting in July. The use of the service is increasing however considering there are over 6,000 SMSF approved auditors (auditors), the level of use is not high. A news article will be published very soon on our website about this support service for auditors. A targeted email will issue to all auditors (scheduled for January 2019) that will refer to other support available to auditors.

    Current ATO compliance program and treatments

    The 2018–19 year ATO compliance program includes:

    Top 100 auditors – This is one of the main focus areas of our 2019 Compliance Program. The Top 100 auditors are selected based on the volume of audits they perform. The Top 100 are responsible for auditing approximately 31% of the SMSF population or 155,258 funds holding $170 billion in assets. We hope to be able to give assurance with respect to this group of auditors.

    High risk auditors – We are continuing to audit high-risk auditors, which include those with independence issues, as well as those who demonstrate risks with auditor competency and audit quality. These are the approved SMSF auditors (auditors) who we detect as being high risk from our data holdings or through internal and external intelligence referrals. So far this year we have completed 35 high risk audits. We have referred 25 of these auditors to ASIC whilst the remainder have resulted in an education outcome because only minor deficiencies were detected. Our case selection processes are quite successful as over 80% of reviews result in some type of compliance outcome.

    The reasons for the referrals to ASIC were as follows:

    Non response

    1

    Not fit and properFootnote1

    4

    Blatant Independence breaches

    Own fund - 4

    Relatives - 4

    Accounts prep – 11

    CPD

    10

    PII

    1

    IAR not in approved form

    5

    Auditing standards (in particular)

    Insufficient evidence -18

    Lack of Knowledge - 16

    Contraventions not identified (in particular)

    R8.02B – 15

    A major concern is that auditors’ files do not include sufficient appropriate audit evidence to support their opinion on a fund’s compliance (this is a consistent issue).

    Practice Statement Law Administration (PSLA) 2018/1 – On 18 October 2018 we published PSLA 2018/1, Self-managed superannuation funds – referral of approved SMSF auditors to ASIC. The PSLA provides instructions to ATO staff in determining whether matters concerning auditors should be referred to ASIC. The publishing of the PSLA follows a recommendation from the Inspector General of Taxation (IGoT) to improve transparency of the process of referring auditors to ASIC.

    Reciprocal Auditing Arrangements – We completed a mail out to 100 auditors involved in reciprocal auditing arrangements, being those arrangements where two auditors with their own SMSF audit each other’s fund. Following our mail out 82% said they would cease the arrangement. We plan to contact those auditors who continue to use reciprocal arrangements and to publish some guidance on our website very soon. Both ASIC, the AUASB and the APES Board have reviewed the article. A scenario has also been added whereby two SMSF auditors who are also professional accountants and who prepare the financial accounts for their clients’ SMSFs, enter into a reciprocal arrangement to swap each other’s clients to audit their SMSFs. We are concerned this raises independence threats where the reciprocal arrangement also results in the auditor heavily relying on the one source of referrals. The guidance will be made available to stakeholders.

    SAN misuse – In most cases, we have found that the SMSF was actually audited but there was an inadvertent reporting of another auditor’s name on the SMSF annual return (SAR) and/or a different SMSF auditor number (SAN). However sometimes there is deliberate SAN misuse as a result of the tax agent wanting to ensure they meet lodgement deadlines so they report a SAN and then get the fund audited or just don’t get the fund audited at all. We have referred 5 tax agents that were responsible for deliberate SAN misuse to the Tax Practitioners Board (TPB) which has generally resulted in an education outcome rather than deregistration. This financial year, we plan to investigate a further 100 SMSFs that are connected to 22 tax agents for reports of a SAN used on the SAR without the reported auditor conducting the audit. We also know of a further 231 funds, represented by 104 tax agents, that have had an incorrect SAN reported. The ATO will therefore review 126 tax agents in total with the aim of prosecuting, where appropriate. The imposition of administrative penalties is also being considered and will hopefully act as a deterrent.

    Overdue Lodgments – another risk that we are working on this year concerns auditors who have outstanding lodgements with their own SMSFs. We published an article on 13 November 2018 advising that we would soon be writing to tax agents and auditors who are trustees of their own SMSF and have failed to lodge their SAR for one or more years. A mail out was undertaken on 16 November 2018 to around 570 auditors with outstanding SMSF lodgements to encourage them to lodge their returns or engage with us so that we may help them meet their obligations.

    ASIC update

    ASIC has received 25 referrals from the ATO to date this year and finalised 19, though 8 of these relate to referrals for the 2018 financial year. The outcomes of the finalised referrals are:

    Conditions imposed

    8

    Disqualification

    1

    SuspensionFootnote2

    2

    Voluntary cancellation

    6

    In progressFootnote3

    16

    The introduction of ASIC’s new registration platform first scheduled for release in October 2018 is now scheduled to be made available to auditors and the professional associations in January or February 2019. Professional associations will be contacted in due course for a demonstration and to provide feedback.

    Recent litigation cases and the impact on auditors

    The ATO discussed its interpretation of the decision in Baumgartner’s case as confirming that where the auditor is not able to verify that material SMSF assets are valued at market value, the Independent Auditor’s Report (audit report) should be qualified and an Auditor Contravention Report (ACR) lodged for a breach of regulation 8.02B of the SIS Act.

    The group agreed some guidance from the ATO on the issues arising from the McGoldrick and Baumgartner decisions would be helpful. It was agreed that the ATO would provide guidance in relation to verification of market value of assets in an SMSF. The guidance material will be circulated to the stakeholders before it is published for any feedback. In addition, the ATO is to consider whether guidance can be provided regarding the auditor’s role in relation to the investment strategy of an SMSF.

    Guidance material

    The possibility of updating Guidance Statement GS009 was discussed. GS009 was last updated in 2015 and it now needs to be updated for changes in law and recent findings from court cases. The independence issues are out of date and reciprocal auditing arrangements also need to be covered.

    The AUASB acknowledged that GS009 needs to be updated and this needs to be added to their agenda. There is sufficient justification to commence the project in 2019 however, it will need Board approval. Once approved, the Project Advisory Committee will be able to review the feedback received in relation to GS009. The work of the committee will then go back to the Board to approve the update. No exposure process is required as per any update to the auditing standards. There are six Board meetings scheduled for 2019, with the first one scheduled in March. It was recommended that the stakeholders draft formal correspondence to the AUASB in relation to the urgent need for the update.

    Further updates since 22 November 2018 meeting

    The article on use of the P2P service mentioned above published on 28 November 2018 and can be found at the following link:

    https://www.ato.gov.au/super/sup/are-you-an-smsf-auditor--use-our-dedicated-support-service/ 

    The article on reciprocal auditing arrangements mentioned above was published on 7 December 2018 and can be found at the following link: https://www.ato.gov.au/super/sup/reciprocal-auditing-arrangements/ 

    Footnote 1
    Not fit and proper - These four were for a combination of issues including breaching the independence requirements and failing to comply with the auditing and assurance standards and CPD requirements

    Return to footnote 1 referrer

    Footnote 2
    Suspension - One of these auditors was not referred by the ATO

    Return to footnote 2 referrer

    Footnote 3
    In progress - Includes three or four that have requested a review of ASIC’s decision

    Return to footnote 3 referrer

      Last modified: 13 Aug 2018QC 55831