SMSF auditors under the spotlight

The main advantage that we now see is that the registration process is now enabling us to understand and know who the auditor population is, and that’s assisting on a number of fronts.

We can target and identify auditors who potentially aren’t doing what they should be doing, but also it’s enabling us to work with ASIC and the industry.

We are seeing now a maturing of the profession and the number of auditors has dropped off to just over 7,000 now; we’re seeing the average number of audits being undertaken by auditors increasing up to around 50.

The ATO has said it is now going to be addressing every single auditor contravention report that is sent its way. What part of that process has changed and why?

You may be aware the ATO across a number of its areas… looks to operate in a risk-differentiated environment where we’re trying to focus most of our efforts on the high-risk areas with the more high visibility and have different strategies for lower risk problems.

Now in the SMSF market, the information that we’re capturing… it’s feeding into a risk-based model that then gets matched up with other information that we hold about the trustees. Ultimately, that allows us to better risk differentiate the trustees to low, medium and high funds and from that information, we’re now going to be much better placed to target the activities.

For example, a low-risk SMSF doesn’t really warrant a full audit; it’s expensive for us and it’s expensive for the client. That sort of approach might be to write them a letter and highlight to them a couple of areas that we’ve got a problem [in].

A medium risk might be a phone call and a conversation and ultimately the high-risk funds would get a comprehensive audit that may lead to sanctions and penalties being applied.

The other real advantage with the information… it enables us to understand areas where we think SMSF trustees are having the most problems. So from that information we can then look at what are the services and products that we need to provide.

There’s been a lot of noise in the marketplace about low-cost audits. Does the ATO have any concerns about low-cost audits?

It is a factor, but I wouldn’t be saying that it is a number one issue. There’s also concerns raised in the past about the number of audits that you might be conducting, but clearly if it doesn’t look like it’s commercially reasonable for an auditor to do a comprehensive job then it would raise some concern.

Is there any message the ATO would like to send directly to SMSF auditors?

We still have concerns about some of the underlying problems that keep coming up in SMSFs. Loans, in-house assets, separation of assets, so the key contraventions that continue to be around in the industry at the trustee level.

We continue to get a high percentage of the contraventions in those areas and our advice [is] to continue having auditors to continue to work with the trustees to identify those areas and highlight to the trustee where they’ve got these sorts of problems and continue to report them through to us, and that then enables us to work with the auditors to get to those contraventions or those problems and have them rectified appropriately.

We’re continuing to target the education of trustees and as you know, we’ve got the new penalty regime around education and rectification directions where we’re keen to support industry by following up with trustees where they’re not doing the right thing, and so we’re hoping that those sort of problems start to become less and less over time.