A new checklist available on the ATO website lists the top considerations for the office in reviewing an auditor’s compliance across key areas including legal obligations, the processes used in auditing SMSFs and evidence used by the auditor to reach their opinion in an SMSF audit.
“We audit and review SMSF-approved auditors if we have information of concern or we want to provide assurance that an auditor is complying with their obligations,” the ATO said.
“We hope this [checklist] will help auditors know what to expect when we conduct an audit or review.”
As stated by the checklist, ATO staff will check that an auditor is complying with their SIS obligations including by not auditing their own or a relative’s SMSF, or having any commercial relationship with the fund in question such as providing financial advice to or running a business with the trustee of the SMSF.
When reviewing the auditor’s practices, the ATO will look at whether there is an appropriate strategy in place for each audit, as well as all the necessary documentation such as engagement letters, representation letters and management letters where necessary.
In addition, ATO staff will also check that sufficient evidence has been relied upon within an SMSF audit, including purchase contracts for the assets within the fund, bank statements and invoices to confirm any transactions, and valuation documents to prove the market value of the assets.
Trustees will also need to have signed all evidentiary documents, while the ATO will investigate the relationship between certain assets and the trustees to ensure no breaches of the arm’s length or in-house asset provisions.
Where there are contraventions identified in a report, the ATO will check if these were reported to both the office and the fund’s trustees.
The new guidelines come as the ATO ramps up its focus on SMSF auditors, with ATO SMSF future client experience director Edward Chung having pinpointed both the top auditors in the sector and “high risk” auditors as the subject of investigation projects by the office in the 2020 financial year.
“With 600,000 SMSFs out there, we do rely heavily on SMSF auditors to perform an independent and adequate audit of the SMSF prior to the lodgement of their return,” Mr Chung said at the recent Class Connect 2019 conference.
“The top 100 SMSF auditors [are] a key group because, collectively, they audit 31 per cent of the entire population for us, and the funds they audit contain approximately $170 billion in assets.”
Mr Chung said the ATO had audited approximately half of the top 100 auditors and expected to audit the other half this financial year, while it had audited 150 high-risk auditors over the 2019 year and referred 51 to ASIC.
I look forward to reading the ATO’s release, but must add that I believe I have noting to fear from the ATO in this regard, as I am confident my practices and procedures adequately deal with the several hundred fund I audit each year.