The scrutiny of SMSFs by auditors has increased because they are under greater pressure from the ATO to ensure funds are compliant, but this situation is preferrable to lax audits that are then reviewed by regulators, according to a sector specialist.
SMSF Alliance practice principal David Busoli noted advice practitioners and trustees may regard the level of audit scrutiny as excessive, but this was in response to the ATO’s efforts to ensure greater fund compliance with superannuation law.
“The ATO has tightened its approach to SMSF compliance and have placed the burden substantially on SMSF auditors,” Busoli said in a note to clients.
“Auditors are required to take a more rigorous, evidence-driven approach. They must maintain workpapers that clearly show how material balances and transactions were tested and what evidence was obtained.
“The days of ‘trust me, I looked at the file’ are gone. If it isn’t documented, the ATO assumes it wasn’t done.
“If the ATO believes that an auditor is not performing satisfactorily, they will report them to the Australian Securities and Investments Commission (ASIC) for remedial attention, which can include imposition of conditions, reputational loss and cancellation of registration.”
He pointed out SMSF audits were not a checklist to cover, but rather auditors were required to test compliance against elements of the Superannuation Industry (Supervision) Act and Regulations that dealt with financial statements, loans or financial assistance to members or relatives, borrowing and limited recourse borrowing arrangement rules, arm’s-length arrangements, disqualified trustees, and payment standards and preservation rules.
The ATO has also identified illegal early access and prohibited loans, non-arm’s-length income and expenditure, asset valuations, and disqualified trustees and trustee fitness as risk areas auditors should be examining, he noted.
“Trustees might think all of this is just ‘auditor stuff’, but unfortunately that’s not how works,” he stated.
“[Since] the ATO is actively targeting high-risk auditors and low-quality audits, trustees need to be confident their auditor is truly independent of the accountant/adviser, is ASIC-registered and in good standing, is not cutting corners with ultra-low, fixed audit fees for complex funds and has strong processes around documentation, valuations and contraventions.
“If an auditor ends up in ASIC’s enforcement headlines, funds they audit will usually see increased scrutiny too.
“In short, a tough auditor is better than a lenient one followed by an ATO review.”
