The ability for SMSF auditors to be across all issues present in the sector continues to be a challenge and potentially a significant risk, according to an insurance expert servicing the space.
“There is a whole debate going on right now about auditors and are they skilled enough and how can they be across everything,” Self Super Insurance director John Kelly told selfmanagedsuper.
Kelly cited the current problem of inadequate insurance cover for collectable assets within SMSFs as an issue testing this very premise.
Specifically, he said a large number of SMSFs might currently be in breach of the Superannuation Industry (Supervision) Act because they had group insurance cover instead of individual insurance cover for collectable assets.
Common practice is for collectable dealers in these circumstances to provide the SMSF member with documentation showing their name and asset as part of the group cover in place, with the auditor accepting this as evidence of having the required cover in place.
“This is an example of something where auditors are not across an issue. It’s not necessarily their fault because I think they are being misled, but if they had more knowledge of this issue, they’d be able to see it for what it is,” Kelly said.
Considering many SMSF trustees relied heavily on the audit process as proof their fund was in compliance with the superannuation laws, he warned the situation presented a considerable business risk for auditors servicing the sector.
“If one of the funds they audit is in breach and their client gets caught out on this issue, the auditor is absolutely in the gun because they’re the one that signed it off. They’re the one that looked at the documentation and said it was fine,’ he said.
The situation typified how often issues that were regarded as smaller ones represented the greatest risk for auditors, he said.
“It’s one of those funny things. It’s often never your main business that trips you up. It’s always the little thing that trips you up,” he said.
“And for auditors of SMSFs, the art and collectables is a little thing. Art is such a small percentage of all asset classes, yet it’s the thing where the client made the breach and if they incur a penalty arising from that breach, the auditor will be first and foremost answerable for it.”