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More flaws spotted with three-year audit eligibility

More flaws spotted with three-year audit eligibility

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Miranda Brownlee
04 September 2018 — 2 minute read

An audit firm believes superannuation annual returns are insufficient for assessing eligibility for three-year audits and called for additional reporting requirements should the measure go ahead.

In a submission on the three-year audit measure, Super Sphere director Belinda Aisbett said it would be imprudent for government to rely on the information reported in the superannuation annual return (SAR) to establish eligibility for the three-year audit measure.

Treasury has proposed in its consultation paper that eligibility for the measure will be based on two factors including good record-keeping and compliance, and key events.


It is proposing that an SMSF with a history of three consecutive years of clear audit reports be defined as an SMSF without any financial or compliance contraventions issued in an ACR in the previous three years.

Ms Aisbett noted in the submission that good record-keeping is currently based on the information reported in the SAR for the fund.

“[However], the SAR only requires the fund to report if Part B of the audit report has been qualified and if qualified, if the compliance matter has been resolved,” the submission stated.

“No other information is provided to the ATO. As a result, there is insufficient information reported to the ATO to enable an assessment as to whether the fund has a clear audit report.”

Ms Aisbett said good compliance is therefore more than just having three consecutive years of clear Part B audit opinions.

The submission also pointed out that the SAR is lodged by the trustee directly or the tax agent of the SMSF and that the SAR is not subject to review by the auditor.

“The SAR quite literally falls outside the scope of the audit. Notwithstanding this, most competent auditors review the SAR as part of the audit process to add value to their client service offering. However, any suggestions or amendments requested by the auditor may simply be ignored by the trustee or the tax agent for the fund,” the submission explained.

“Further to this, it is not uncommon to hear that a SAR has been lodged prior to the audit being finalised to ensure the fund has met lodgement deadlines and can maintain their 15 May annual return lodgement date, and to avoid late lodgement penalties.”

The submission proposed that, if the measure is to be implemented, all SMSF auditors be required to notify the ATO when an audit has been completed.

 The mechanism for this reporting already exists in the eSat tool offered by the ATO, the submission said.

The submission suggested extending the eSat tool to include additional questions, such as whether Part A of the audit opinion was qualified, whether Part B of the audit opinion was qualified, if an ACR was lodged and if there were any other compliance matters identified by the auditor.

“We make this recommendation noting that this will naturally add time to each audit, and therefore add costs for the SMSF trustee,” the submission noted.

“Notwithstanding this, we strongly believe that if the measure is to be introduced, then eligibility needs to be appropriately assessed by the ATO based on independent information.”

The introduction of notifying audit completion information with the ATO by the auditor, it said, would also assist the ATO in identifying tax agents or trustees incorrectly lodging the fund SAR prior to an audit being finalised, and would assist the ATO in identifying funds that go unaudited each financial year.

More flaws spotted with three-year audit eligibility
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