Administration, ATO, Auditing

Diversification needs audit focus

Diversification Investment strategy Auditors ATO Auditor contravention report

The ATO has specifically expressed what it expects from auditors with regard to reviewing the diversification of an SMSF investment strategy.

A superannuation lawyer has alerted SMSF auditors to the regulator’s expectations of them to assess the level of diversification in a fund’s investment strategy and how seriously they must take this requirement to lessen business risk.

“This is what the ATO is saying to SMSF trustees … your auditor will check whether [the investment strategy] meets the investment standards under the super law [and when it doesn’t] comply to the investment strategy requirements, your auditor may need to notify us about this by lodging an ACR (auditor contravention report),” consultant lawyer Peter Bobbin told delegates at the Auditors Institute SMSF Auditors Day 2024 recently held in Sydney.

“So [the ATO] is actually expecting you to put in ACRs where diversification doesn’t fit [the legal requirements].”

He noted to date not many SMSF auditors had lodged an ACR based on an examination of an investment strategy.

According to Bobbin, the fact the regulator has formally communicated to SMSF trustees its expectations of auditors in this area means it can be an area of scrutiny for practitioners and, as a result, a source of significant business risk.

“The tax office is expecting it from you, so if it is out to be looking at you the auditor and what you’re doing and whether you’re doing it properly and whether they want to report you across to ASIC (Australian Securities and Investments Commission), and maybe ASIC can then make a decision (on your behaviour), this could be one of the things [it can use to trip you up],” he warned.

“[So] I’m saying to you it seems to me, after reading everything I’ve read, if you’re not taking [this duty] seriously, you’ve got an issue in your practice. So it’s a risk to you and your practice and your ticket.”

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