SMSF trustees who have received an auditor management letter or any fund that has breached the superannuation legislation should not qualify for the three-year audit cycle for at least three years, according to an SMSF advocacy group.
The Self-managed Independent Superannuation Funds Association (SISFA) has used its submission on Treasury’s audit discussion paper to set out what it believes the eligibility criteria should be for SMSFs to qualify as having good record-keeping and compliance should the proposal go ahead.
“Should the policy proceed, SISFA’s view is that the eligibility for the three-year audit cycle should be further extended beyond that which has currently been proposed to maintain the integrity of the system,” the submission said.
It argued the majority of instances of non-compliance by SMSFs are not flagged to the ATO via either an auditor contravention report (ACR) or audit qualification. The auditor may instead only be required to notify details of the breach directly to the trustee through a management letter as the breach may be small or it may not fall within requirements for notification in an ACR.
“For example, a fund with a balance of $1 million could have a one-off breach to the value of $29,000, but this would not necessarily result in an audit qualification or an auditor contravention report,” SISFA said.
“The auditor’s role in this example is to inform and educate the trustees of their error in order to reduce the chance of future breaches of the legislation.”
The submission also warned despite issuing a trustee with an auditor management letter, the trustee may not necessarily take action to correct the compliance breach until the following year’s audit.
“If the criteria for good compliance does not exclude those funds where an auditor management letter has been issued, in the above example, the fund would qualify for the three-year audit cycle. In this situation, it could be up to four years before any further action is taken to rectify the identified breach,” it said.
“For the above reasons, SISFA’s view is that any fund that has had a breach of the superannuation legislation, including those which have been reported to the trustees through a management letter, should not qualify for the three-year audit cycle for at least three years.”
SISFA also said it wants an alternative definition of “clear audit reports” that extends to funds where there has been either a Part A or Part B audit qualification on the audit report.
“As such, funds that have had a qualified audit report issued should not be eligible for the three-year audit cycle for at least three years,” it said.