Guidance for SMSF auditors released as one-third set for review
The ATO has released new guidance providing details on how the ATO determines whether matters concerning SMSF auditors should be referred to ASIC, as the ATO braces for a “top 100” assurance campaign.
The Law Administration Practice Statement, PS LA 2018/1, sets out what ATO staff need to consider in determining whether matters concerning approved SMSF auditors should be referred to ASIC. You can access PS LA 2018/1 here.
The practice statement explains what considerations will be taken into account when the ATO forms an opinion that an approved SMSF auditor is not a fit and proper person to be an approved SMSF auditor.
While the practice statement acknowledges that “fit and proper person” is not defined in the SISA, it has been considered by the courts on a number of occasions.
When considering whether a person is fit and proper, the courts have looked at the auditor’s character or reputation, the qualities of honesty, knowledge or professional competency, and the ability to act appropriately, the practice statement explained.
They have also examined the failure to perform any of their duties and functions adequately and properly, including auditing funds they were a member of or failing to obtain sufficient evidence or inadequate documentation in support of an audit, it added.
“These are not the only considerations that you need to take into account; an evaluation of all the relevant particulars of each case will need to be made,” it said.
“Whether an approved SMSF auditor in another role, such as a trustee of an SMSF, has complied with their SISA obligations would also be a relevant consideration as to whether he or she was a fit and proper person to be an approved SMSF auditor.”
The practice statement also outlines that, generally, the ATO would only form an opinion that an approved SMSF auditor has failed to properly discharge their duties or functions after reviewing one or more audits of SMSFs conducted by the auditor.
“It is not necessarily the case that where an approved SMSF auditor has failed to identify or report a single contravention during an audit of an SMSF that the commissioner would consider that they have failed to properly discharge the duties or functions required in the conduct of an audit of an SMSF,” it said.
“The failure to identify or report the contravention may be trivial in the context of the particular audit so the decision will depend on the facts in the particular case.”
The practice statement explained that in determining whether an auditor has performed their duties and functions adequately, their compliance with the SISA and the SISR will be examined. This includes compliance with their professional obligations and reporting obligations.
It also stated that an approved auditor must advise the commissioner and the trustee when they form an opinion that the financial position of the SMSF may be, or may be about to become, unsatisfactory.
It also warned that if an auditor fails to comply with a notice to provide the ATO with access to information relating to an SMSF, then the auditor can be prosecuted and convicted of a criminal offence.
The ATO is also set to conduct a “top 100 assurance program,” which will capture the top 100 auditors who are responsible for auditing approximately one third of the SMSF population who lodge.
Assistant commissioner for SMSFs at the ATO, Dana Fleming, told delegates at the SMSF Summit in Brisbane that assurance activities to date have resulted in 98 referrals to ASIC.
As it has been in the five years since auditor registration was introduced, independence continues to be a key focus of the ATO’s compliance activity with SMSF auditors.
“SMSF auditors must be independent, and also be seen to be free from bias, personal interest and association,” Ms Fleming said.
Auditor contravention reports (ACRs) form a critical part of the ATO’s risk rating system, making the integrity and quality of SMSF audits crucial.
About 10 per cent of ACRs fall into a high risk category. They can include serious and repeated contraventions and no attempt by the trustee to rectify.
Earlier this year, the ATO said it will be visiting 300 SMSF audit firms in 2018, in a bid to seek assurance on key compliance requisites, including independence.