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  • SMSF auditors – what you need to know now

    We would like to update self-managed super fund (SMSF) auditors, trustees and professionals about our compliance work with SMSF auditors.

    Approved SMSF auditors have a critical role in helping to maintain the health and integrity of the SMSF sector. We work closely with ASIC to support and regulate SMSF auditors.

    When it comes to auditor compliance, prevention is better than cure. Our compliance approach is designed to support SMSF auditors as well as identify and deal with those we consider high-risk. We:

    • provide information and guidance to help SMSF auditors understand and comply with their professional obligations and the super laws
    • provide specialist support products
    • conduct audits and reviews of SMSF auditors where our data or intelligence indicates there may be some concerns with their compliance and behaviour.

    We also provide information and advice to SMSF auditors where our data indicates areas of concern. The SMSF auditors area on our website provides substantial information on all of the above.

    Below are a number of key issues we have found in our work over the past 18 months and also information about our current activities.

    Key issues

    Auditors who appear to be auditing funds where they have a role or responsibility for preparing the accounts and financial statements

    We contacted auditors we suspected of being involved in preparing accounts and financial statements for funds they audited. We are completing full audits of auditors where the contact confirmed this was the case.

    In these cases the auditor is generally a sole practitioner (ie sole-registered auditor in the business) but often with some staff. The staff typically prepare the accounts or financial statements and either the auditor, or a senior staff member, signs off on these. Our view is that this still creates an independence issue because the staff report directly to a sole-practitioner auditor.

    Low-cost auditors

    We have found evidence to support industry concerns that low fees might equal low quality. For example, with some low-cost auditors, we’ve found:

    • gaps in audit evidence
    • contraventions identified but not reported
    • instances where there was no written audit plan
    • limited or no use of checklists
    • a lack of key documentation such as trustee representation letters.

    An ATO investigator, or another auditor, should be able to pick up an audit file and see how the work was done, including documentation that supports significant judgements.

    Auditors who appear to be auditing a relative’s/ relatives’ funds

    Where our data indicates an auditor may be auditing a relative or relatives’ funds, this raises significant concerns about whether the auditor is meeting independence requirements and we will initiate an audit. We have referred cases to ASIC.

    Continuing professional development (CPD) compliance

    During our compliance work we also look at compliance with CPD requirements. We have found some compliance gaps and have passed this information on to ASIC.

    See also:

    • Compliance audit – information on our minimum expectation of audit testing in relation to the regulatory checks listed in the SMSF independent auditor’s report
    • Issues of concern – information on issues of concern we have found through our compliance work

    Referrals to ASIC

    So far this financial year, we have referred 31 SMSF auditors to ASIC for further investigation:

    • 25 auditors had issues relating to insufficient evidence
    • 23 of those 25 auditors also had independence issues
    • over half of the 31 auditors failed to ensure the fund’s assets were at market value.

    In comparison, during 2016-17 we referred 22 SMSF auditors to ASIC. The increase reflects, in part, our increased focus on auditor assurance.

    Our compliance work this year

    This year we will visit about 300 auditors we’ve assessed as having some kind of risk, to discuss the risks identified and review their audit process with them.

    See also:

    To keep up to date with all the news and alerts for SMSF trustees and professionals, subscribe to SMSF News.

      Last modified: 26 Feb 2018QC 54656