Latest AAT decision on regulation of approved SMSF auditors: Townshend and ASIC
A recent AAT decision on the regulation of approved SMSF auditors should act as a warning that all relevant and professional obligations in the sector are considered, says an SMSF legal specialist.
Bryce Figot, special counsel with DBA Lawyers, said Townshend and ASIC [2023] AATA 3810 has many applications for SMSF auditors that go beyond the actual practice. It also suggests that responses made in the face of allegations can be detrimental to the outcome of a case.
Janette Townshend, an accountant and SMSF auditor with more than 30 years’ experience and an “unblemished record”, applied to the AAT to review a decision made by ASIC to disqualify her in 2022.
Mr Figot said Ms Townshend audited an SMSF for many years where her husband was a member.
“As an approved SMSF auditor, SISA s 128F(d) and SISR reg 9A.06 expressly required that Ms Townshend follow APES 110 which is the code of ethics for professional accountants,” he said.
Although APES 110 has undergone various iterations over the years, it always prohibited an individual from participating as an ‘audit team member’ where an immediate family member is a director of the audit client.
Mr Figot said that although the AAT decision does not expressly say that ASIC disqualified Ms Townshend because she audited her husband’s SMSF, it is the clear implication in the AAT decision that was the reason for her disqualification.
“Ms Townshend made several arguments as to why she should not be disqualified. Some of those arguments appear to have done her more harm than good,” Mr Figot said.
“She initially argued she had no interest in the fund and also claimed her ‘performance as an auditor was of a mechanical nature’ but ASIC argued that description suggested she misunderstood what auditors do.”
He said it appears the AAT sided with ASIC stating “that she perceived the audit role as being ‘mechanical in nature’ suggests a serious misunderstanding about the auditor’s role in the regulatory system applicable to SMSFs”.
Ms Townshend further argued she was under the impression that “auditor independence requirements in the code did not apply to SMSFs because the relevant provisions appear on their face to be directed to members of an audit team rather than individual auditors”.
“The AAT considered that argument ‘untenable’ and noted Ms Townshend ‘has now (reluctantly) accepted any doubts she might have had … should have been resolved by making appropriate enquiries’,” Mr Figot said.
The AAT said in its ruling that she also displayed an “insistence [that her] the conduct was to some extent excused or explained because it was common in the industry”.
“This argument definitely weighed against her. The AAT said that ‘[i]f there really is a widespread misunderstanding in the audit profession over the application of the auditor independence requirements, that is an argument for more stringent regulatory action in this case’,” Mr Figot said.
“Although she had an unblemished record the AAT also noted that her error was ‘all the more troubling given the extent of her experience’.”
Subsequently, the AAT decided to uphold the ASIC’s decision to disqualify Ms Townshend.
Mr Figot said although Ms Townshend did withdraw some of her earlier arguments against the decision including the one where she considered an auditor’s role to be ‘mechanical in nature’), they still weighed against her.
“In crafting responses — even initial responses — to the ATO and ASIC, tremendous care needs to be taken as the wording and tone can matter and be relevant in any potential subsequent AAT decision,” Mr Figot said.
