Auditing, Education, SMSF

Auditors failing key requirements

SMSF auditors

Many SMSF auditors are being issued with ATO education directions for failing one of the most fundamental tasks required of them.

Recent ATO statistics regarding education directions issued to SMSF auditors have shown failings relating to the engagement letter and trustee representation letter are contributing significantly to this course of compliance enforcement action.

During a presentation at the SMSF Auditors Association of Australia Conference 2023 held in Sydney last month, Tactical Super director Deanne Firth revealed 26 per cent of education directions the ATO delivered involved this form of auditor communication to clients.

“Surprisingly engagement and trustee representation letters were high on [the list of reasons to issue] education directions because I thought that was pretty much the easiest part of our work,” Firth noted.

“They give us the wording, we put it [into a document] and get it signed.”

She pointed out the data does not indicate the common problems arising out of these documents, such as not having them signed by the SMSF trustees, but took the opportunity to remind practitioners of what is required to establish proper approval of the two types of letters.

“Remember with your trustee representation letter you have to get 50 per cent [of trustees] or two [trustees] to sign it. So if you’ve got four members in the fund, you’ll need two signatures and if you’ve got six [trustees], you need three,” she said.

She pointed out the biggest reason behind ATO education orders to SMSF auditors was for not having sufficient and appropriate evidence to support the conclusions reached during the required yearly process.

To this end, she explained what is considered sufficient and appropriate evidence.

“Sufficiency is looking at the quantity of the evidence. So if you’ve got a higher risk transaction, generally you would need more evidence on file,” she said.

“[To satisfy the requirement of] appropriate [evidence] you’re looking at the quality of the evidence. So the higher the quality of the evidence, the less is required.”

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