The ATO has updated the instructions for auditor contravention reports (ACR) and provided an update on its actions regarding its correspondence with SMSF auditors whereby funds they were servicing had not reported any change in the valuations of properties and unlisted trusts for three consecutive years.
Specifically, the regulator has addressed three of its ACR instructions covering professional judgment, the trustee behaviour test and contraventions.
With regard to the use of professional judgment, the ATO has clarified when it is suitable for an auditor to use it when determining whether the lodgement of an ACR is required for market value contraventions related to assets held by service organisations.
The update has also scrapped the requirement to report contraventions of the trustee behaviour test where the offending actions are not anticipated to be ongoing in subsequent years.
Further, the ATO has now provided examples of contraventions needing to be reported over several years as opposed to those requiring to be reported only once in its instructions.
With regard to the letters it sent out to over 1000 auditors servicing SMSFs with property or unlisted trust holdings with unchanged valuations for three consecutive years, the regulator revealed the response it has received from those practitioners to date.
“We then checked the value of the assets reported to us when those SMSFs lodged their next SMSF annual return. We found that 80 per cent of the SMSFs updated their property valuations, but only 48 per cent updated the unlisted trust valuation,” the ATO noted.
“Where valuations were not updated and ACRs were not lodged, we commenced reviews on those auditors involved. We asked for the evidence they used to verify that the assets were valued at market value. In all cases finalised so far, we found the auditor didn’t obtain sufficient evidence to verify the market value.”
In light of what the ATO has discovered so far regarding valuation processes that are out of date, it issued a reminder to both SMSF auditors and trustees such practices are a breach of their legal and professional obligations and can result in compliance action and penalties for the respective parties.
