The ATO has observed many SMSF auditors are not using the trustee management letter in the manner in which sector legislation and regulation intended, leading to adverse consequences for these practitioners.
“[An area where we are seeing auditors] getting it wrong as well [involves] notation within the management letter as part of the audit – so the management letter for the trustee. A lot of that is reflective of asking trustees to get [asset valuations] right for the following financial year,” ATO acting deputy commissioner Paul Delahunty told attendees of a recent Auditors Institute member webinar.
“No, that’s not an appropriate way to consider fund obligations under [Superannuation Industry (Supervision) (SIS) Regulation] 8.02B.”
Delahunty pointed out this approach potentially leads to poor compliance outcomes of a significant nature.
“Obviously we understand that approach has been adopted, but again, in terms of what is expected of auditors, we regularly see situations where auditors haven’t qualified their audit report because of a lack of evidence or detail in relation to the [asset] valuation and obviously they haven’t reported a [SIS Regulation] 8.02B contravention as well,” he revealed.
“They are making up a significant portion of the [auditor] population that has been referred through to ASIC (Australian Securities and Investments Commission) for audit deficiencies.”
He indicated the regulator has also noticed more fundamental flaws in audit procedures with regard to asset valuations.
“One of the key things we are observing within audit files we are reviewing is that there is an absence of any evidence in relation to market valuations being sourced by the auditor or provided by the trustees, [as well as] a lack of file notes to support the valuation or the auditor’s opinion as to why they believe the asset has been reported at market value,” he said.
He acknowledged while there are several reasons as to why this is happening, the misunderstanding that a market valuation for an SMSF asset only needs to be performed once every three years was a contributing factor.
