ASIC ramps up compliance activity in SMSF audit space

ASIC noted that these actions are in addition to the 18 SMSF auditors it acted against following their alleged involvement in reciprocal arrangements.

“The actions resulted from breaches of obligations including auditing and assurance standards, independence requirements, and registration conditions or because ASIC was satisfied the individual was not a fit and proper person to remain registered,” ASIC stated.

Disqualifications

ASIC disqualified two SMSF auditors in October 2021, Christopher Baldwin of Victoria and Adnan Sibai of Sydney.

ASIC alleges that Mr Baldwin engaged in significant breaches of the auditor independence requirements.

“He audited the funds of family members. He shared common financial interests with one of the funds. He also audited a fund that lent money to a company of which he was a director. Mr Baldwin’s firm also prepared financial statements that he subsequently audited,” ASIC stated.

The ASIC investigation also found that Mr Baldwin had not obtained sufficient appropriate audit evidence and did not adequately document his audits in relation to ownership and market value of assets, arm’s length rental properties, loan arrangements and the requirement for trustees to have signed financial statements.

“Mr Baldwin also did not obtain signed financial statements or trustee declarations,” said ASIC.

The disqualification also related to the failure to report a breach as required, it said.

“Mr Baldwin identified and concluded in his audit of a fund that money had inappropriately been withdrawn from a bank account. He did not qualify his auditor’s report or lodge an auditor’s contravention report to the ATO as required,” it said.

Mr Sibai was disqualified for allegedly failing to obtain sufficient audit evidence about fund structure, including whether each director of a fund’s corporate trustee was also a member of the fund; ownership of assets; dividend and trust distributions, the relevance and reliability of internet bank statements and automatic bank feeds and the requirement for trustees to have signed financial statements.

“He also did not adequately consider the relevance or reliability of other evidence he did obtain,” the corporate regulator stated.

ASIC noted that Mr Sibai had been disqualified by the ATO from being a responsible officer of a corporate trustee of a superannuation fund and disqualified by the Tax Practitioners Board (TPB) from being a tax agent 

According to ASIC, Mr Sibai did not declare his disqualification by the TPB to ASIC in his relevant SMSF auditor annual statement. Mr Sibai also failed to lodge four SMSF auditor annual statements.

ASIC initiated cancellations

Of the ASIC-initiated cancellations, Yuk Wong of NSW had his registration cancelled in August 2021 for not meeting conditions previously imposed on his registration to provide evidence of compliance with continuing professional development requirements and to review and revise tools and templates used to perform and document SMSF audits.

The other two ASIC-initiated cancellations were due to the auditors not maintaining the practical experience necessary for carrying out SMSF audits.

“They had not performed any significant SMSF audit work during a continuous period of more than five years,” ASIC stated.

Voluntary cancellations

ASIC accepted requests from seven SMSF auditors to cancel their registrations as negotiated outcomes of their individual investigations about various breaches, or for fitness and propriety concerns, including:

• Having signed company auditor reports when not a registered company auditor or having allowed this to occur;
• Actions taken against the auditor, as a tax agent, by the TPB;
• Auditing fund accounts prepared by the auditor’s firm;
• Auditing a sibling’s SMSF;
• Not obtaining sufficient appropriate audit evidence about fund structure, limited recourse borrowing arrangements, investment strategy requirements, ownership of assets, valuation of assets, sole-purpose tests, in-house asset requirements, arm’s length requirements, and the requirement for trustees to have signed financial statements; and
• Auditors’ minimum continuing professional development requirements.

Conditions imposed on registration

ASIC imposed conditions on the registrations of the other seven SMSF auditors for issues relating to failure to obtain sufficient audit evidence or not adequately evaluating it, including whether fund assets were recorded at their market value and complied with arm’s length requirements and in-house asset rules. There were also breaches of the auditor independence requirements, according to ASIC.

Some of the conditions imposed include:

• Having three audit files reviewed by an independent SMSF auditor;
• Undertaking a course on conducting SMSF audits;
• Notifying professional body of additional conditions;
• Having SMSF audit training provided externally to all employees who perform SMSF audit engagements;
• Establishing, reviewing and revising SMSF audit policies and procedures regarding acceptance and continuance of SMSF audit engagements, addressing overall SMSF audit client volume and capability to complete to standard and retention of clients who fail to provide documentation as and when required;
• Passing an ASIC SMSF auditor competency exam;
• Undertaking a course on conducting SMSF audits and SMSF auditor independence;
• Conducting an independence threat review for all SMSF audit clients;
• Not performing an audit of any SMSF where the fund is a client for bookkeeping, accounting or tax services;
• Reviewing and revising SMSF audit tools and templates;

Thirteen of these SMSF auditors had breaches identified and referred to ASIC by the Australian Taxation Office (ATO). The other six had issues identified directly by ASIC.

ASIC commissioner Sean Hughes said SMSF auditors play a fundamental role in promoting confidence and instilling trust in the SMSF sector, so it is crucial that they adhere to ethical and auditing standards.

“ASIC will continue to take action where the conduct of SMSF auditors is inadequate and fails to meet the requisite standards,” said Mr Hughes.