SMSF auditors are not solely responsible for identifying non-arm’s-length income and expenditure issues for their clients, with tax agents working on financial statements and annual returns equally obligated to ensure problems are addressed, according to a specialist adviser.
Deloitte national SMSF leader Liz Westover said the commencement of the non-arm’s-length expenditure (NALE) provisions from 1 July last year raised some concerns as to who would address NALE-related issues in a fund.
“There was some controversy when these measures were coming in and everyone believed it would be an audit issue and auditors were going to be responsible,” Westover said during a presentation hosted by The Auditors Institute today.
“I believe it is a tax agent issue and it is up to the tax agent as well. Even if the auditor has not picked something up, that does not mean as a tax agent that you are effectively off the hook.
“If you are signing off on a return that has not addressed some of these issues, then have you met your own obligations as a tax agent believing those documents or those returns to be true and correct?
“So, tax agents need to be mindful of their obligations versus those of an auditor and be aware whose responsibility it actually is [to identify NALE] issues, and from an audit perspective there is a materiality assessment that doesn’t necessarily apply for tax agents.”
She said there was still confusion around the operation of the NALE rules, particularly when a general or specific expense applied, and how non-arm’s-length arrangements arise, which required education of SMSF clients but also other practitioners who may be involved.
“Education of clients is absolutely critical, but have a think about who you are dealing with. Is it an accountant, tax agent or auditor and if it is not the trustees themselves, then maybe there is an expense that needs to be paid by the fund to those related-party entities for the services that they provide,” she added.
“This sometimes gets missed and we need to make sure we are capturing all of those expenses provisions and where they were implemented and your clients have some comfort around how you calculate those costs.
“It is not going to be the same for every client, but so long as there is a documented process and reasonable basis for how they are calculated, that’s going to be okay.”
