Rise in SMSF auditor referrals to ASIC
Increasing numbers of SMSF auditors are being referred to ASIC for non-compliance, while some of the sector’s top auditors on a volume basis have also been identified as needing more education on their obligations, according to the ATO.
Addressing the Class Connect conference in Sydney on Monday, the ATO’s Edward Chung said audit quality had been a key focus for the office in recent years, given the degree to which the ATO relied on independent audits in its assessment of the funds’ compliance with regulations.
“What we want to see is that the auditor has formed an evidence-based opinion to determine that the trustee has complied with their regulatory obligations,” he said.
“We will also look at any software that they use to seek reassurance on their automated processes.”
Mr Chung said the ATO was concerned at rising numbers of auditors whose processes indicated non-compliance and warranted referral to ASIC.
“So far we have referred 148 auditors to ASIC for further action, and 51 of those referrals were sent to ASIC this year,” he said.
“The most common reason for referral is that the auditor has failed to comply with the standards; mostly it’s because they didn’t have sufficient evidence to support the audit. Independence breaches are also common, which involves the auditor auditing their own or relatives’ funds.”
However, he added that only six auditors referred to ASIC this financial year had serious enough compliance breaches to warrant disqualification, which was down from the 11 disqualified by the corporate regulator in 2018.
The ATO had also focused its investigations on the top 100 SMSF auditors in the sector, who together were responsible for $170 billion of the assets in the SMSF space, Mr Chung said.
“So far we have completed 51 reviews of the top 100 auditors, and the results of this were that 17 were found to be fully compliant, 30 needed further education, and two of the top 100 auditors have been referred to ASIC,” he said.
Mr Chung added that the ATO had also flagged significant compliance concerns within the top 100 SMSFs in the sector, all of which had over $40 million in assets.
“We have risk-profiled all these SMSFs and identified that 35 per cent warrant a closer look — this might be because of their use of LRBAs, reported contraventions, rapid and excessive asset growth rates or other risks identified by the private wealth areas of the ATO,” he said.