SMSF trustees should be on high alert after only a minority of SMSF auditors came out of a regulatory review unscathed.
The Australian Taxation Office (ATO) has revealed the results from its audit of 51 of the top 100 SMSF auditors. Only 10 auditors were found to be fully compliant.
Peter Burgess general manager, technical services and education at SuperConcepts says: “Given that auditors play an integral role in protecting SMSF member benefits and compliance, I think there is some reason for trustees to be concerned here.”
The ATO revealed that three auditors voluntarily deregistered once the audit commenced. A further two were referred to ASIC due to failure to obtain sufficient appropriate audit evidence to verify the fund’s compliance with relevant super laws.
Burgess says: “Trustees should check that their auditor is on the mandatory Australian Securities and Investments Commission (ASIC) register. That should give them comfort that they are licensed and they can do the audit properly.”
A further seven auditors did not have signed financial statements on their audit files and four auditors failed to retain a signed engagement letter or trustee representation letter on at least one of the audit files reviewed.
Burgess recommends trustees check that their auditor is a specialised SMSF auditor due to its rigorous accreditation process.
In addition, trustees can check if their auditor is a member of an accounting association and the SMSF Association, as they will be governed by a code of ethics and removed from the associations for any wrongdoing.
A staggering 36 of 51 auditors were notified that they require further education and, following, this will be reviewed again in another two to three years. The ATO may refer them to ASIC if no improvement is made.
Burgess says: “Trustees should get some comfort that the ATO is using further education to lift the quality of audit.”
The most common deficiencies among the group that require education included failure to obtain sufficient appropriate evidence to verify the funds compliance with the super law.
The breaches were to do with market valuations from trustees for unlisted units in trusts, evidence for limited recourse borrowing arrangements, sufficient valuation evidence for collectibles including insurance and documenting evaluations of evidence of non-arm’s length income.
The tax office says: “We’re concerned that some auditors failed to obtain sufficient appropriate audit evidence or failed to evaluate the evidence in order to demonstrate how the auditor arrived at their opinion on the financial and compliance audit.”
Four auditors had also failed to identify that the SMSF’s assets were not in the correct name.
A further two auditors had identified that the fund bank account had gone into overdraft and the fact that the fund had failed to invest in accordance with the percentages stated in its investment strategy but failed to bring this to the trustees’ attention.
The tax office says: “We’re also concerned with the number of unsigned financial statements we found and the lack of other documents that should be on the audit file, such as a signed trustee representation letter, engagement letter and in some cases, a management letter.”
The ATO expects to finish the remaining 49 auditor reviews by the end of this financial year.