ATO, Auditing

Asset charge check impractical

ATO Charge over assets Derivatives SMSF Auditors

Recent ATO guidance regarding checking charges for property assets held by an SMSF may be impractical for auditors and the regulator has missed an opportunity to clarify an emerging compliance risk.

Auditors overseeing SMSFs might find a recent recommendation in ATO guidelines regarding property asset charges to be a potentially time-consuming task, according to an SMSF technical specialist.

ASF Audits head of education Shelley Banton noted a suggestion made by the regulator in guidance released in August last year was likely to be impractical for most SMSF auditors.

“One thing the ATO [has recommended] is a check of the personal property securities register (PPSR) to see whether there are other parties who have registered an interest against SMSF assets,” Banton told attendees of a recent ASF Audits webinar.

“I’ll let you know now that’s not something that we are going to do because it is like looking for a needle in the haystack. And even though there’s rules to put the charge over there, pretty much anyone can just register a charge over any asset.

“This is where we can go down that rabbit hole and waste incredible amounts of time chasing information that amounts to nothing. In fact, I don’t know of too many other auditors who do use the PPSR to look up whether there are charges over fund assets.”

She suggested the regulator could have instead focused on another emerging compliance risk in relation to SMSF trustees.

“I really think this was a little bit of a missed opportunity for the ATO to remind trustees who have started amping up their investments in derivatives what their obligations are, as we’re seeing an increase in derivative trading,” she stated.

“In order to trade derivatives through a broker approved by the Australian Securities Exchange, trustees will have to provide a charge over the assets of the fund. They’re not always aware that’s the case.

“I’ve also spoken with accountants who have sworn black and blue that the trustee hasn’t given a charge over the assets.”

She also reminded auditors to be wary of their role when assessing derivative trading documentation during an audit.

“One of the main things to be aware of is that while SMSF advisers can help prepare trustees with their derivative risk statements, auditors can’t supply a template,” she noted.

“We can’t recommend a service provider because it’s a conflict of interest and we’re effectively in a way auditing our own work and we would have to decline the audit in that case.”

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