The new reporting requirements the ATO has implemented regarding Part A qualifications to be included on the SMSF annual return may not be permanent as the objective of the exercise may be unachievable, a specialist auditor has said.
“The ATO has said reporting Part A qualifications will assist them in risk profiling the SMSF population and will also be one of the factors considered when auditing an SMSF. In reality, the ability to glean any discernible patterns or trends given the nature of Part A qualifications will be difficult,” ASF Audits head of technical Shelley Banton said.
“Most importantly, the ATO has said it will not look to take compliance action on Part A qualifications for the 2019 year. Given there’s a good chance that what is required to be reported will change for the SMSF annual return in 2020, this could be a flash in the pan for the industry.”
A Part A qualification arises when an SMSF auditor has been unable to confirm the financial reports of a particular fund do not include misstatements that are of a material nature.
Banton said some of the main reasons a Part A qualification would arise include the inability to obtain audit evidence on the opening balances, the presence of assets that are not valued at market value and the inability to obtain audit evidence on underlying investments reported via a platform.
She warned first-year audits are most susceptible to a Part A qualification as the new auditor has to verify all opening balances as reported by the incumbent.
“Giving this part of the audit a green tick means effectively undertaking an audit on the prior-year audit, which is why some SMSF auditors typically qualify Part A of the audit report,” she noted.
Achieving proper compliance with the Part A qualification obligations is potentially a laborious task, but one auditors cannot avoid, she said.
“To avoid an opening balance Part A qualification, the auditor must test the cash account and all material assets and liabilities,” she noted.
“The comparatives on the current-year financial statements must be checked to the closing balances from prior-year financial statements. Where the amounts do not agree, an audit query must be raised.”
