ATO sets compliance targets for auditors in 2017-18

“Moving into 2017-18, we want to start examining some other structures and relationships that may also give rise to a compromise in an auditor’s independence,” explained Ms Macfarlane.

“One of the aspects we’ll be looking at is the referral source of an audit, especially where there’s a heavy reliance on the fees generated by a particular source, or where the auditor has a close personal or business relationship with that referral source.”

The relevant independence guidance standards for SMSF auditors, she said, require auditors to identify threats to independence, and evaluate the significance of those threats and apply safeguards when necessary to eliminate them to an acceptable level.

“I want to emphasise that even though a particular circumstance or scenario is not specifically referred to in the standards of the guidance, SMSF auditors need to apply their judgement to [all] situations where there could be a perceived threat to independence such as self-interest, familiarity and potential intimidation,” she said.

Following the ATO’s investigations into auditor independence during the 2016-17 financial year, there were 12 auditors referred to ASIC related to independence breaches, she said.

“Three of those 12 auditors audited their own fund and eight had audited a relative’s fund. Some referrals had more than one independence breach, with six of the referrals acknowledging that the auditor or the auditor’s staff had also prepared the financials,” said Ms Macfarlane.

“Of the 12 referrals made this year, ASIC have finalised their investigations into six of those. In two cases conditions were imposed on the auditor’s registration, in another two cases the SMSF auditor voluntarily deregistered as an SMSF auditor, and in the final two cases that have been finalised by ASIC, ASIC disqualified the person from being an SMSF auditor.”

While asset valuations have always been important from a regulatory and income tax perspective for SMSFs, Ms Macfarlane said valuations will become particularly critical this year in light of the superannuation changes.

“Valuations are pivotal for the purposes of the transfer balance cap, total superannuation balance and CGT relief purposes,” she said.

The SMSF valuation guidelines on the ATO website, she noted, will still apply and can be relied upon in the context of the superannuation changes.

“The key principle underlying those valuation guidelines is that a valuation needs to have been arrived at using a fair and reasonable basis; and the valuation is considered to meet that fair and reasonable criteria where it takes into account all relevant factors and considerations likely to affect the valuation of the asset, it has been undertaken in good faith, it uses a rational and reasoned process, and it’s capable of explanation to a third party,” she said.

“From an SMSF audit perspective, an SMSF auditor should reasonably expect to be able to see and view documented evidence that demonstrates that a fund’s assets have been valued in accordance with those principles.”

As a matter of prudence, Ms Macfarlane said either an SMSF trustee or auditor might decide to use a qualified valuer if the “value of a particular asset represents a significant proportion of the fund’s value, or the nature of the assets means that a valuation might be complex or difficult”.

The guidelines also make it clear, she said, that a valuation will only be acceptable if there’s no evidence that a different value has been used for a corresponding capital gains tax event, which is particularly relevant in light of the superannuation changes.

“The ATO will be concerned if we see instances where a different valuation is used for transfer balance cap purposes for example, compared with one used for the purposes of claiming CGT relief,” she said.

“And discrepancies like that should also be red flags for further review and consideration.”