In an exclusive interview with SMSF Adviser, Bryce Figot, special counsel for DBA Lawyers, said that on 17 August the ATO put out a new page on its auditing advice guidelines that indicated an auditor should be doing a title search for every title every year.
Mr Figot said for a number of years the ATO has maintained a page on its website, QC 45566. Although the exact wording has changed over time, the suggestion has always been the auditor should obtain evidence that trustees have not given a charge over or in relation to a fund asset by seeking written confirmation from trustees and by carrying out the following checks:
- Property title search to check for encumbrances on real property;
- The Personal Property Securities Register for other parties registering interests against other SMSF assets.
“The above does not talk about the need to do this annually,” he said.
“More specifically, it does not expressly say that an approved SMSF auditor should conduct title searches for each title annually.
“But in August 2023 the ATO launched a new web page dedicated to just looking at how auditors should check charges (QC 73156).”
The ATO website now states auditors should obtain evidence annually that trustees have not given a charge over in relation to a fund asset by seeking written confirmation from trustees and by reviewing the:
- Property title to check for encumbrances on real property
- Personal Property Securities Register to check for other parties registering interests against other SMSF assets
“Naturally, the ATO’s opinion is not the law. However, the ATO decides whether to refer an approved SMSF auditor to ASIC.,” he said.
“Accordingly, the ATO’s opinion is very important, therefore, there is merit in an approved SMSF auditor conducting a title search for each title annually.”
In the past few weeks, the ATO has issued several notices indicating that it is ramping up its compliance program for SMSF auditors, and making more referrals to ASIC.
“And it is something I am doing more of in my practice, advising and representing auditors,” Mr Figot said.
“The ATO has said for some time that auditors need to seek written confirmation from trustees, however, an auditor may say they did check it a number of years ago and are understanding they don’t need to do it every year,” he said.
“But as of August, it seems the ATO is suggesting that auditors now obtain evidence annually.
Mr Figot said the ATO has a compliance program of auditing approved SMSF auditors. If the ATO is satisfied with what it sees, it may close the file. However, if the ATO is not satisfied, it may refer the approved SMSF auditor to ASIC.
“ASIC then has various options open it including disqualification,” Mr Figot said.
“For this, and many additional reasons, approved SMSF auditors should aim to maintain audit files that quickly satisfy any ATO audit.”
It is not a new requirement Bryce. Checking compliance with reg 13.14 is, and has always been, an annual audit obligation, as are all the sections and regulations we sign off on in our audit report.
Hi Belinda
I refer to our phone conversation earlier today. As discussed, for the benefit of SMSFAdviser’s readers, I thought I would post this summary of our conversation.
You and I are on the same page.
Namely, this new ATO webpage is the first time the ATO has publicly expressly stated ‘You [ie, auditors] should obtain evidence ANNUALLY that trustees have not given a charge over or in relation to a fund asset … by reviewing the property title…’ (my emphasis).
However, the annual requirement to check reg 13.14 is not new. That requirement has been around for many years. Obtaining an annual title search and checking for charges is a good way for an auditor to investigate compliance with reg 13.14.
Regards
Bryce
Bruno
Every word of yours should be weighed in gold and I hope ASIC is listing (or reading).
It takes me a minumum of 5 – 6 hours to do a proper audit (say $1M with property and LRBA) of a fund which I have never audited before to ensure all the sections of the act and the regulations in the audit report have been complied by the fund. At the current market rate – I will make more money cleaning.
Either I don’t engaged or the fund gets audited by an overseas under graduate who has no clue what to do – he has no up to date audit program and has no contact with the Administrator or the Trustee of the fund.
Yet, the ATO wants to believe that there are only 2% of funds which have breaches in them. I bet this figure will be 10X if audit fee is moved to your figure of $2,000
The SMSF audit industry needs a shake up. It shot itself in the foot decades ago with low, one size fits all audit fees.
Now even if an auditor wants to do a thorough job, they are hamstrung by an artificially low market price for SMSF audits.
The proliferation of SMSF auditors running sweatshops overseas has exacerbated the low fee situation.
The SMSF audit industry is in a bind. If it can’t get out of the low fee hole itself, then ASIC regulators might need to do it for them I.e. set a minimum regulated SMSF audit fee of $2,000? With the full application of audit standards and searches that the ATO & ASIC expects, that’s what it should really cost.
Financial advisers don’t help the situation. Most don’t understand accounting or audit or what’s involved. Yet they put their SMSF clients at risk of low cost audits that find nothing and recommend nothing to SMSF trustees. That’s self defeating. It’s no defence to say “the auditor didn’t find it”, not to the ATO or your client!