Bryce Figot, special counsel for DBA Lawyers, said in a recent webinar that although the ART did not give a definitive number of audits that an auditor should undertake each year, a recent case suggested that there is an upper limit that should be considered.
In late January, the ART upheld ASIC’s decision to disqualify MD Nazrul Islam from being an approved SMSF auditor for failing to comply with auditing standards.
Islam, of Clayton South, Victoria, was originally disqualified from being an approved SMSF auditor in February and appealed the decision to the ART on 17 April 2024.
The facts of the case state that numerous SMSF clients engaged Islam as an approved SMSF auditor. ASIC records show that Islam completed 252 SMSF audits in the 2019 income year, 296 SMSF audits in the 2020 income year and 386 SMSF audits in the 2021 income year.
In his evidence before the tribunal, Islam accepted that the number of SMSF audits noted by ASIC in those years was “about right” and also advised the tribunal that he has two staff and does a mix of work, including some accounting work.
In late 2022, the ATO selected three of Islam’s audits for compliance review and consequently issued a Position Paper to Islam on 16 January 2023 expressing its concerns about those audit files.
Following a review, the ATO referred the matter to ASIC under section 128P of the Superannuation Industry (Supervision) Act on 13 June 2023 on the basis that Islam failed to carry out or perform adequately and properly the duties and functions of an approved SMSF auditor at Australian law.
Figot said that one of the key takeouts from the case was that the ART considered the number of audits that could be completed to a satisfactory standard was around 250.
“We can see their reasoning – 250 and above, according to the ART, is probably too high,” Figot said.
“I think there’d be a lot of auditors doing 250 plus per annum who are doing a really good job and I might add that the ATO currently has a program of auditing auditors. Currently, they say they’re looking at volume audits, and they define volume as 1,000 or more per annum.”
Figot continued that the ART in this case acknowledged that Islam performed hundreds of SMSF audits per year.
The tribunal stated in its decision that “there are 104 weekend days per year After a further reduction for public holidays there were approximately 250 working days in 2020 and 249 in 2021, which means Islam must have completed or commenced more than one SMSF audit per working day.
“While I accept that many SMSF audits may be simple, I do not believe that the level of SMSF audit workload for one person is particularly prudent. It may cause corners to be cut.”
Figot said the figure suggested by the tribunal is probably the “maximum of prudence”.
“Sometimes you need a bit of a circuit breaker to think about how [the number of audits completed] will be considered if the ATO decides to scrutinise you,” he said.
“Even though it might be what you’re used to doing, how will it look if it comes before the ART, for example. You never quite know how things are viewed.”
Totally agree with V. Indeed, despite the concessional tax rates, all of this unnecessary red tape makes superannuation a marginal proposition, in my view. Let’s see how they would like it if we put all the bureaucrats and politicians on the same ridiculous regime as they impose on us, instead of their cushy risk free Government guaranteed indexed pensions for life.
By and large, the auditing of SMSFs is just more red tape that the government insists on – another expense which for the majority of SMSFs is a waste of money and a lot of work extra – for the smsf, the accountant and the auditor – for nothing. Its more evidence of the nanny state that our country has become.
Most SMSFs do the right thing, or do their utmost to ensure that they are doing the right thing. But the system gets more and more complicated. I often wonder if the increased complexity is done deliberately so as to catch everyone on something if the government wants to, including poor overworked auditors.
Sorry for my cynicism. From where I stand, it is just a lot of box ticking with a huge stick being held by the overseeing government.
This is not just in this industry, but all industries. False economies.
And then to top it off, everyone needing to pay towards compensation when one direct/company/employee does the wrong thing that was not picked up despite all of this waste of money, time and effort. And the perpetrators abscond and rarely pay… It just happens again and again.
Hmm, 250 audits, say an average of $500 each net of GST, gives around $125k in annual turnover. Unless you’re working from home, on your own, and have little in the way of expectations of earning a decent living from a tough job, then this is a pretty unattractive proposition to most. Perhaps special counsels should also limit the number of cases they work on, might limit the farcical merry-go-round that is the legal system.
Your average charge out has to go up – it is that simple. Average fee should be $750, if you ask me, for all the work that auditors do. I am not an auditor, but I have never understood how robo-firms could charge under $400 in the first place. That hardly covers time for all documentation required! Quality is worth it.
Wow. Finally feedback that auditors performing smaller numbers of audits may actually be a good thing!
Just a thought: With 32,000 new funds being added a year, that means we would need 128 new SMSF registered auditors each year as well. Where are they coming from?
And, where are the extra accountants/tax agents coming from, to cope with the massive influx of work.
The more rules the government put onto agents/preparers, the fewer funds/tax returns they can do in the same amount of hours they have. Ergo, our Tax System will also require even more agents given the TASA changes, the extra Quality Review prep work required. You cannot add 10 – 20 minutes to every new job and expect the same output!