In the recent court case Cam & Bear Pty Ltd v McGoldrick, heard by the NSW Court of Appeal, an SMSF auditor was found to be responsible for losses incurred by an SMSF trustee.
The SMSF trustee in the case felt they had suffered losses, because the auditor did not warn them that the investments may not be recoverable, as previously reported by SMSF Adviser.
The court found that the auditor was negligible in failing to make proper enquiries as to the recoverability of certain assets the SMSF had invested in and report the results of those enquiries to the appellant trustee.
Speaking to SMSF Adviser, TriSuper Auditors director Joel Curry said following this case certainly has an impact on the liability of SMSF auditors.
The court is essentially suggesting that it is the auditor’s role is to provide opinions on the valuation and existence of certain assets in the fund, even where its non-listed assets such as property, property trusts or non-traditional investments.
“The auditor is now supposed to audit the investment theoretically but that’s going to be difficult on a cost basis. [Realistically] I think most auditors will tend to put a qualification in Part A of the audit report rather than spend time auditing the actual investment,” said Mr Curry.
“Even that puts you at risk of not preparing a proper audit, but fee pressure will dictate what the auditor can and can’t do.”
Mr Curry also expects that this case will lead to an increase in PI insurance costs when the next renewals arrive.
“Insurers will look at it and decide there’s a bit more risk there than they originally thought,” he said.
He also predicts that there could be further litigation cases against auditors that arise from this case.
“Litigators out there will see this case and follow up with people who’ve lost money through schemes. They will think ‘the auditor has a nice PI policy over here to pay for it’,” he warned.
I can not understand how auditor can comment on the investment by the trustees. We are not suppose to comment on investment as this comes under financial advice. We come across incidences where investments are in unrelated private enterprises or in solicitor’s trust and we know that is all unsecured but can not comment.
Good point, and will his PI even cover him if this was how he was operating?? Also raises the question on what the heck ASIC are doing as if we are having dodgy brothers and co running around in the space pushing up our premiums maybe we should sue ASIC for the costs. Seems everything price wise is going up except fees clients are willing to pay these days, race to the bottom!
Totally agree, if the auditor had made appropriate inquiries and ensured the asset was valued at it’s market value, the auditor would have had no liability for losses.
Indeed, had the fundamental audit requirement to verify the ‘existence’ of items on the balance sheet been undertaken, this would never have reached the courts.
This wasn’t a complicated audit, it just wasn’t done.
If PI goes up, it would be for individual Auditors that have this type of history.
Hear, hear. The scaremongering around this case is ridiculous.
I think Joel is missing the point of this case. Auditing standards require you to obtain sufficient appropriate audit evidence for each material balance. The asset in question was cash at bank. The auditor in question was negligent by not verifying the asset as being a cash account. Had he made the appropriate inquiries the asset would be reclassified as a loan receivable, which the member was not aware it was. I would be surprised if premiums increase significantly as this was isolated case of gross auditor negligence