A specialist SMSF lawyer has warned practitioners making a note in a management letter instead of lodging an Auditor Contravention Report (ACR) when dealing with a borderline compliance issue could actually make the situation at hand worse for them.
“There is a Practice Law Administration, PS LA 2018/1, where the ATO provides guidance to its staff about when to refer an approved SMSF auditor to ASIC (Australian Securities and Investments Commission)…and it gives the example of an auditor who says, ‘I think there is a contravention but I won’t tell the ATO, I’ll just tell the trustee in a management letter,” DBA Lawyers special counsel Bryce Figot told SMSF Association Audit Day 2024 delegates recently.
“[Here] the auditor looks worse because it looks like they are trying to hide [the compliance breach],” he added.
Despite this guidance he acknowledged auditors are not required to report SMSF issues they detect to the regulator.
“If [the breach is] less than 5 per cent [of the fund’s total asset value], if it is less than $1500, if they’re not a recidivist, etcetera, under the reporting criteria you might be able to not lodge an ACR, but if in doubt, ACR out,” he said.
Figot also advised auditors not to be afraid to lodge an ACR if the client raises strong objections to them doing so.
“What if the accountant says, ‘I’m shocked at your behaviour auditor. It’s outrageous. If you dare lodge an Auditor Contravention Report I’ll sue and I’ll stop sending you work and I’ll tell all of my colleagues and friends and they’ll stop sending you work [as well]. You will suffer’,” he suggested.
“[In this situation] you tell the ATO [about it] and if you don’t tell the ATO you [will be considered] a criminal and you could go to prison for 12 months,” he explained.
