ATO to investigate 1,300 instances of SAN misuse

The ATO has previously explained that it selects high-risk auditors where its data or intelligence indicates an inability to identify reportable contraventions; high volume, low ACR ratios; and high volume, low-cost audits. It also selects auditors where its data has identified potential independence breaches.

“Our high-risk auditor compliance work is becoming a stronger focus for us, particularly compliance with the independence standards impacting firms who provide both non-assurance and auditing services to an SMSF,” said Mr Micale, speaking at the Tax Institute’s Superannuation Intensive.

“The restructured Code of Ethics and the guide make it clear that firms that provide both accounting and auditing services to an SMSF known as in-house audits will only be able to do so in very limited circumstances.”

Last year, Mr Micale said the ATO had a strong education focus where it issued detailed guidance on its website and produced a webinar to help firms comply with the standards.

“The guidance provides further details on the standards impacting in-house audits, as well as some of our concerns around restructuring arrangements. We expect firms to have familiarised themselves with our guidance,” he said.

Mr Micale said the ATO’s compliance approach relies on data and intelligence to identify, assess risk and deal with higher-risk firms, including those who continue to provide in-house audits, are involved in reciprocal auditing arrangements, or have a high percentage of fees from a single referral source.

“Over the next 12 months, this program of work is expected to deliver increased visibility on how we’re working with ASIC as co-regulators to address inappropriate audit behaviours,” he warned.

Some of the other issues recently identified by the ATO relate to the failure to obtain audit evidence to support the market valuation of property and transactions with related parties, he noted.

“We also commonly find audits lacking documentation to support the conclusions reached, which is a critical element for enabling us to determine whether an audit has been conducted appropriately. This is the case even if there is no contravention reported,” he said.

SAN misuse

Mr Micale said, in terms of the ATO’s program focused on SMSF auditor number (SAN) misuse, there has been a “significant, positive shift” in the behaviour of tax agents and SMSF trustees lodging annual returns with the correct SAN quoted.

“SAN misuse occurs where approved SMSF auditor details have been incorrectly reported on an SMSF’s annual return. In the last three years, we’ve invested heavily in identifying instances of SMSF returns being lodged where auditor details have been entered incorrectly or the audit has not been undertaken,” he said.

“We’re [continuing] to track SAN misuse from our September mailout. We expect that approximately 70 per cent of auditors will have responded to these requests by the end of April.

“We will then be seeking to take compliance action to review the 1,300 or so instances where we’ve been informed that SAN misuse may have occurred,” said Mr Micale.

This is a slight drop from the 1,315 instances of SAN misuse initially reported for 2020 annual returns.