Show download pdf controls
  • 12 December 2017

    Meeting held on 12 December 2017.

    The information provided below is a summary of topics discussed at the meeting.

    Super new measures - what are SMSF auditors seeing to date

    Members indicated there have been challenges educating staff and clients about the new measures with a lot of additional work required this financial year, including considering commutation to get under the $1.6M (in compliance with PCG 2017/5), and whether CGT relief applies. Some simple mistakes have been seen with segregation as well as some level of confusion around Transition to retirement income streams (TRIS) and reporting for CGT relief.

    The ATO will monitor and assess whether further communication in the New Year may assist in addressing some of these issues. The ATO is aware that the impact of the new measures may mean some trustees are tempted to ensure that the valuation of assets is such that it provides a favourable result in terms of the caps. The ATO reiterated that the requirement for trustees to value fund assets at market value remains unchanged and that auditors need to be provided with sufficient appropriate evidence from trustees to substantiate their market valuations.

    Current ATO compliance program and treatments

    Our SMSF compliance program continues year upon year. This year, there is an increased focus on SMSF auditors, reflecting the importance of their role in the system.

    • High-risk auditors – they include auditors with significant independence issues (audited own or a relative's fund), sole practitioner auditors (or their staff) also preparing the SMSF's accounts, low cost auditors, and auditors who haven't lodged ACRs for some years. They will generally be subject to a comprehensive field audit, however, a streamlined approach will apply to refer auditors who audited their own fund direct to ASIC (where verified).
    • Moderate risk auditors – two partner firms, auditors reliant on single referral source, auditors with a close business or personal relationship with their clients or referral source. We will investigate potential independence threats and other specific risks identified, and test their processes to give assurance about the level of risk and quality. Where issues are identified, unless they are serious, we will encourage auditors to make their own improvements.
    • High volume auditors – Not considered particularly high risk but with a high level of consequence due to the volume of fund audits. We aim to give a level of assurance.

    The ATO and ASIC take independence seriously. Where a referral is made by the ATO to ASIC which includes concerns about independence, ASIC will determine if it is appropriate to consider factors that could change behaviour including adding conditions to their registration.

    The ATO is interested in identifying and addressing independence risks where auditors or their employees work on and sign off on a fund's financial statements as well as the audit. This can occur with sole practitioner auditors and in some instances two-partner firms whose employees also work on the financials.

    ATO referrals to ASIC

    Key issues

    Referrals to ASIC have increased steadily. There were 15 across the three year period from 2013 to 2016. This rose to 22 in the 2017 financial year, and again to 22 in only the first six months of the 2018 financial year. There is an even mix between independence and competency issues. Systemic issues will generally result in referral to ASIC but, for minor issues, compliance staff will work with the auditor. Increased referrals resulted from factors including improvements to risk assessment processes and case selection, increasing staff capability and resources, and increased understanding between ASIC and the ATO.

    During the period 1 July 2016 to 11 December 2017:

    • 11 auditors were referred for auditing their own fund.
    • 18 auditors were referred for auditing a relative’s fund.
    • 24 failed independence as they, or staff, also prepared the fund's accounts.
    • 31 failed to maintain sufficient audit evidence (24 of these were non-independent).
    • 27 failed competency – including not identifying or reporting contraventions.

    Most common contraventions not identified or reported included section 8.02B (assets at market value), section 67 (borrowings and LRBAs), section 65 (loans to members or relatives), regulation 4.09A (separation of assets) and section 109 (arm's length).

    Reasons put forward for not complying with independence requirements included:

    • auditors auditing their own or a relative's fund, couldn't find an independent auditor in time, know the fund better than anyone else, simple fund with no complex assets
    • sole practitioner auditors who believed they complied because they have experienced staff who prepare the accounts for them.

    ASIC was also informed of 12 auditors who had failed to meet their CPD requirements.

    ASIC outcomes

    To date, five auditors referred to ASIC since 1 July 2016 have been disqualified by ASIC. Reasons included independence (immediate or close family member), quality of work and non-responsiveness to the ATO. One auditor was disqualified for failing to lodge the annual statement. 13 auditors voluntarily cancelled their registration. Before accepting a voluntary cancellation ASIC will also assess whether there are circumstances where disqualification may be a relevant consideration. Auditors whose voluntary cancellations are accepted are advised that ASIC will reconsider the issues if the auditor later reapplies for registration.

    13 auditors had additional conditions added to their registration, including:

    • three to five audits to be peer reviewed by an independent auditor ASIC agrees to
    • additional training requirements (ethics, SMSFs etc)
    • sit and pass a competency exam (if they had not previously done so)
    • report CPD details over a three year period
    • limit the number or the type of audits that can be undertaken
    • update methodology, tools and templates or use appropriate audit software
    • respond to ATO or ASIC requests within a specified period
    • auditor to provide ASIC with proof that a copy of the notice of conditions and the reasons they were imposed were provided to their professional association.

    ASIC has issued media releases for disqualification and suspension orders. In the future, they may issue media releases for imposing conditions.

    The ATO may still refer a matter to ASIC even where the auditor has stated they have voluntarily cancelled.

    Bitcoins

    There is no prohibition on bitcoins in SMSFs, however trustees should recognise the volatility of the investment and seek advice before committing to the investment. Regulatory rules require the asset to be managed separately from the member’s own assets, and for ownership to be clearly demonstrated.

    Bitcoins are not 'cash' and they can’t be acquired from a related party. Some arrangements don’t allow them to be held in trustee names on behalf of the fund.

    See also:

      Last modified: 13 Aug 2018QC 55831