Auditors should avoid sending out positive management letters or reports to trustees regardless of whether the fund meets its compliance requirements, according to an audit specialist.
“The ATO has tried to make us do this over the last couple of years and they’re still trying to do that,” Baumgartner Superannuation senior consultant Chris Malkin told the 2015 Self-Managed Independent Superannuation Funds Association SMSF Forum in Melbourne last month.
“Please don’t give out any positive management letters, which [state] everything is squeaky clean and the fund is running beautifully.
“Because then I don’t realise that the client is just about to buy a new boat from the fund or something goes off the rails that neither they or myself knew, but I’ve just said everything’s going perfectly.
“Who’s the client going to look to blame?”
Malkin said auditors were exposed to potential common law action by trustees.
“The trustee is still responsible for compliance, but if we don’t pick up something which they’re paying us to pick up, along with the expectation that we will pick it up, we have a common law responsibility to the trustee,” he said.
“If they conclude that we haven’t complied or taken shortcuts, we have our necks on the chopping block and a judge will determine how much we have to reimburse the trustee for his or her loss.”
However, there were ways for auditors to avoid liability, he said.
“The rule is that if we do an audit and we find that we can’t arrive at an opinion on a particular area, let’s modify our audit report as we’re able to do that under the legislation,” he said.
“Or we do a Part A qualification to say that I haven’t looked at that related unit trust because I haven’t got accounts for it, and consequently I don’t give any opinion, so we simply narrow the scope of our report.
“We’ve got to comply with Australian auditing standards and Superannuation Industry (Supervision) Act requirements, we’ve got to provide our auditor’s report within 21 days, we’ve got to report to the trustees if there are or likely to be any contraventions, or if the fund is in an unsatisfactory financial position.”
He said auditors’ responsibilities were black and white.
“We have stated to the people who employ us, the trustees of the fund, that we will comply with the standards in the conduct of our audit and the trustee has paid us in the belief that we have complied with those standards,” he said.
“So we have a contract to the trustee.
“The expectation of the ATO, ASIC and the profession is that we have complied because we’re professional auditors and we’ve got disciplinary consequences if the [regulators] find that we have not complied.”
