Keeping auditors on track

From a regulatory perspective, do you think enough has been done to combat any SMSF auditor independence concerns?

I think the tax office has been very active in this area. And, to start, what the ATO has actually said is that their issues around independence are actually down, but they still think there’s an area of focus and there’s more that can be done.

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Having said that, I think one of the big things about the auditor registration process is that the tax office has now got this unique identifier. And that means they can really focus hard and fast on who is offering audit services, and start putting some of their data matching capabilities into effect.

So they’re able to focus on particular issues like independence because they can identify it in ways they’ve never been able to identify it before. So, for example, if an annual return is lodged and someone is down as the auditor and they’re down as the tax agent as well, it’s now much easier for the tax office to be able to say ‘well hang on, this might be a problem, maybe we need to have a look at a few other things and ask a few more questions.’

So, that’s one of the more positive outcomes I think of the registration process. The ATO can hone in on these particular issues that they have previously been concerned about.

And, to be fair, they are actually doing some really good education programs around this. This is really quite a facilitative approach around educating first. But where people are getting it wrong and where there is a reluctance to engage with them and rectify situations, then they are being referred off to ASIC for enforcement action.

What do you think has been the broader impact of auditor registration on the SMSF sector?

Certainly the numbers are down. We were around the 10,500/11,000 mark prior to registration; there’s now less than 7,000 auditors out there offering SMSF audit services.

It has rationalised the industry significantly and a lot of those that didn’t go through the registration process were those who were doing low numbers of audits anyway. So it really was a great opportunity for people to really think about the services that they were offering and whether or not they wanted to continue to offer SMSF audit services.

Those who are now offering audit services are far more likely to be better engaged, offering a greater level of audit services, and to really have a good handle on the standards and SIS compliance and so forth when they’re offering those services.

What are the benefits of registration for the regulators, aside from the obvious?

I think communication becomes a lot easier – it’s targeted communication rather than a shotgun approach to putting out a new piece of information and hoping that it gets picked up by the right people. You can really tailor it more specifically and direct it to those people who are offering SMSF audit services.

One of the other outcomes that we are seeing is that the tax office now, as part of the legislation around the registration process, has the ability to refer auditors not just to ASIC but they can actually also refer them to other government bodies as appropriate.

So what a lot of auditors need to be very, very careful of is that it can affect their ability to offer other types of services.

For example, if there was a problem identified and an action was taken against an auditor, the ATO can actually talk to the TPB as well, and the TPB can actually assess them for the appropriateness to hold tax agent’s licensing.

So auditor behaviour can have a significant flow-on effect?

Absolutely. The tax office is also looking at if someone is disqualified from being an SMSF auditor it may also impact their ability to be an SMSF trustee themselves.

So there are other government regulatory bodies that the tax office will be talking to where an SMSF auditors is found wanting.

A lot of it can come down to simply just being a fit and proper person. The ATO wants to make sure that people are going to take their responsibilities as trustees seriously, to look after these monies and abide by the laws.

Now if you’ve got an auditor who isn’t able to abide by the laws and do the right thing on one hand, how can they be expected to do it as a trustee?

It’s a good warning sign to people in saying that these can be the implications. If you think you can fly under the radar, well you really are running a huge risk now, because the data matching capabilities of the tax office are becoming so sophisticated.

Is there anything else that the ATO is keeping an eye on that auditors should be aware of?

There’s probably three areas of focus. One is around independence. The second one is auditor knowledge and compliance with SIS. So they want to make sure that people have got a really good handle on what the law is, changes in superannuation law, and what their responsibilities are in reporting breaches of that law.

And also, auditor competency and compliance with standards. What they’re saying there is that you can be a very knowledgeable person, but we also want to make sure that you’re a competent auditor carrying out a quality audit.

So you can be the most educated person in the world, but that doesn’t mean you’re competent in carrying out an audit properly.

Are you satisfied that there’s enough regulation in the audit space to keep everyone on track?

I think there’s a lot more we could do and I think education is the key to that. I think it’s more that if people are going off the rails, if people have done the wrong thing, it’s often not a deliberate or malicious act. It may be that they need a bit more education in a particular area of SIS compliance for example, and so we’re pleased to see that the tax office is working with people around those education pieces. rather than coming out and saying you’ve done the wrong thing, then punishing and sending them off to ASIC for enforcement action.