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ATO to examine auditors over possible breaches

The Australian Taxation Office (ATO) will investigate a large number of SMSF auditors who it believes may be failing in their obligations for independence, Australian residency and complying with audit standards.

SMSF auditors who wish to sign off audit reports must be registered with the Australian Securities and Investments Commission (ASIC). They must be Australian residents, pass a competency examination, have a suitable level of practical experience and hold certain education qualifications.

There are more than 7000 registered SMSF auditors on ASIC’s books, and the ATO has facilities to see a wide range of statistics on the activities of those auditors.

The ATO’s Howard Dickinson, who works in the superannuation risk management area, said as many as 1000 auditors appeared to be auditing funds for which they were also working as tax agents, in breach of requirements that they should be independent of the funds they reviewed.

The tax office also had concerns about some auditors who appeared to be producing an unrealistically large amount of work, which could indicate they were cutting corners or inappropriately outsourcing work to offshore auditors.

“Trust me, we are going to take those people and have a good look at them,” Dickinson said.

Dickinson made the comments during a discussion about the difficulties SMSF auditors face in fulfilling their regulatory obligations in an increasingly cost-competitive environment.

Auditors had been airing their frustrations during a session at the SMSF Professionals’ Association of Australia conference where SLCA director Sharyn Long and Audit and Assurance Standards Board senior project manager Rene Herman were presenting on auditing standards and procedures.

Long suggested auditors could save costs and time by ensuring they concentrated on the biggest risks in a fund. “In the planning phase you need to focus on where the risk is, focus auditor attention on that stuff, not the standard stuff,” she told the conference in Brisbane yesterday.

They should use professional judgment and scepticism in deciding what type of documentary evidence to accept from SMSF trustees, for example, whether copies of bank statements would be sufficient, or whether they should see bank confirmations of money held in accounts for the SMSF.

Auditors should also determine up front what would be considered material for the purposes of the audit. According to ATO guidelines, the larger amount of 5 per cent of the fund’s value or $30,000 should be considered material, but Herman said auditors might use different values if they considered another sum to be more appropriate for the fund.

“You need to set your materiality threshold and then look at that in light of the ATO,” she said.

She also advised auditors to push back on SMSF trustees to fulfil their responsibilities to provide market valuations for assets backed up by appropriate evidence. The ATO has guidelines on its website about how SMSF fund assets should be valued.

Dickinson revealed the ATO was reviewing its guidelines on how to value SMSF fund assets at market rates as auditors had found them difficult to follow.

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