An auditor’s letter of engagement is sufficient to put them on the hook for failures identified but not addressed in their report, with a legal case reinforcing that position, according to an SMSF auditor.
ARC Super director Ashley Course said the level of responsibility a letter of engagement imposes on an auditor was examined in the case of Ryan Wealth Holdings Pty Ltd v Baumgartner [2018] NSWSC and a practitioner’s obligations were not limited to providing a report or noting contraventions.
“I had a person in one of my recent training sessions say that it’s not the auditor’s job to protect the members. Well, that’s not what the court says. The Ryan Wealth Holdings case talks about the auditor’s obligations with regard to the engagement letter,” Course noted during a presentation at The Super Playbook, recently co-hosted by the Institute of Financial Professionals Australia and The Auditors Institute in Sydney.
“[As an auditor] you sign an engagement letter with the trustees and your contractual obligation is found in that engagement letter.
“That relationship imposes specific duties on an auditor to exercise reasonable care and skill in following the auditing standards and the legislative requirements. It prescribes the auditor’s responsibilities and can form the basis for legal accountability.
“So it’s not just the Superannuation Industry (Supervision) (SIS) Act and the auditing standards we have to worry about. It’s the engagement letter as well because you say you will provide reasonable assurance the financials are in order and the trustees complied with the relevant SIS Act and SIS Regulations requirements.”
He pointed out an auditor was not only reporting to the trustees, but also the members of an SMSF and to the ATO, which are all users of an audit report.
“You often hear: ‘Trustees should know what they’re doing. They should take responsibility. They signed an ATO declaration to say they know what they’re doing and are going to take their responsibility seriously,’ but that’s not what the court said,” he added.
“[In Ryan Wealth Holdings Pty Ltd v Baumgartner] the trustees did assume some responsibility for their loss, but most of the blame was laid on the auditor.”
