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Auditing

Auditor duties potentially redefined

A recent court case has caused confusion surrounding the auditor's role.

A recent case heard in the New South Wales Supreme Court has potentially redefined the role of the auditor and caused increased angst and potentially some confusion within the SMSF sector.

In Ryan Wealth Holdings Pty Ltd v Baumgartner [2018] NSWSC 1502 the auditor of an SMSF was held accountable for certain failings of the fund and was ordered to pay damages of $2.2 million for money lost on loans issued that were defaulted.

One specific finding was the auditor, David Baumgartner, had failed to properly carry out his duties because he had not alerted the SMSF trustee of the conflict of interest that had arisen from the roles the financial adviser involved with the fund had played. This included being the enduring power of attorney for the trustee, preparing the financial statements for the fund and auditing the fund for one financial year.

“We’ve always assumed that the trustee knows there is a conflict. We see conflict all the time,” Assured Super founder Sharif Eldebs told delegates during a panel session at the recent 2018 Self-managed Independent Super Funds Association Annual SMSF Forum in Melbourne.

“We’ve never gone back to a trustee and said [for example] ‘do you know that your accountant set up this trust and he’s the one putting the money in’, but this shows us now we have to communicate this to the trustee.

“I mean it’s a bit forward to treat them as idiots and tell them that there is a conflict.

“So we’re now, on the back of that, going to change our representation letter and get the trustee to convey back to us they know it’s the same person – the financial adviser, the accountant, the person involved with the investment is all one and the same person.”

Baumgartner was also admonished for not fulfilling his duties regarding the fund’s investment strategy.

Fellow panellist Super Sphere director Belinda Aisbett said on this score the role of an SMSF auditor has been misrepresented.

“The investment strategy was a really interesting point and I have to admit when I read through the judgment I did get a little cross. There were some bits of it that just plainly to me highlighted that the judge really didn’t understand what auditors are supposed to do,” Aisbett said.

“There are numerous comments in there how it’s the auditor’s job to safeguard the fund from financial risk. That is not our job at all.

“I find it really difficult when that makes it into cases, and therefore into the press, [allowing trustees to think] my auditor has signed off on everything and I’ve got a tick that my fund and my assets and my choices are all fantastic.

“But that’s not the role of the auditor.”

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