SMSF auditor registration has effectively been in place for 12 months now, with mandatory ASIC registration for anyone offering SMSF audit services from 1 July 2013. It is timely to reflect on what has changed since the introduction of this new regime and where the focus of the regulators lies.
Number of auditors
The total number of SMSF auditors has decreased significantly from around 10,500 to just over 7000. This fall was expected with a concern about a sufficiency of auditors to service the growing number of SMSFs. However, most of those who decided not to seek registration had previously only been undertaking very low numbers of audits. The impact of a reduced number of auditors was therefore minimal.
The registration process
The process of registration proved to be challenging for a number of people, particularly in gathering together all the relevant information required by the Australian Securities and Investments Commission (ASIC). The Institute of Chartered Accountants in Australia provided academic transcripts for over 1000 of its members. Despite the difficulties, however, ASIC was able to process the vast majority of applications in time for a 1 July start date. Some applicants had conditions placed upon their registration, mainly around a requirement to sit a competency test. The corporate regulator recently granted an extension of time to those with this requirement to ensure ample opportunity to register and sit the exam in a suitable location. Transitional arrangements are no longer available. Anyone seeking registration will now have to satisfy the full set of requirements.
Auditing the auditor
As the Australian Taxation Office (ATO) has retained its role in policing SMSF auditors, it will continue monitoring SMSF audit activity and conducting its own audits of auditors. Where the ATO finds that some action may be required, they will refer the auditor to ASIC for disciplinary action, which may include disqualification. Risk factors will be assessed by the tax office in deciding where to undertake their policing activities. Identification of a combination of risk factors applying to an auditor will most likely be where the regulator focuses its attention. This may include the number of audits undertaken, independence and contravention reports lodged.
Independence
Independence remains a key focus of the regulator. Earlier this year, the ATO indicated it had identified about 1200 auditors who were also offering tax agent services. While it is possible to put appropriate safeguards in place so a firm can offer both tax agent and audit services, it still remains a risk factor for breach of independence obligations. It is expected the ATO will be contacting these auditors to remind them of their independence obligations. Furthermore, if any of them are identified through other risk assessment activities, they may be subjected to closer scrutiny.
Misuse of auditor details
The ATO is conducting a pilot program enabling auditors to report to them all SMSF audit activity. This information will be data matched against SMSF annual returns to ascertain if auditors’ details are being used inappropriately. There is concern that some auditors’ details may be included in an SMSF’s annual return where the audit has not been completed.
Professionals-to-professionals program
The regulator is also offering a program to enable auditors undertaking larger volumes of audits to access senior members of its superannuation team to resolve more complex or difficult issues. It will be monitoring the success of this program with a view to extend availability to more auditors.
Compliance strategy
Assisting auditors also will be the ATO’s new compliance strategy. For the first time, the tax office will be contacting all trustees for whom an audit contravention report has been lodged. This will assist trustees in understanding how the ATO will be treating the reported breach. Auditors will be able to request this correspondence from the trustee to assist them also. However, how the ATO treats a reported breach does not change how an auditor should treat those breaches if they reoccur or remain unrectified. They need to continue to meet their reporting obligations. Repetitive breaches by a trustee may change the way the ATO treats it in the future.
It’s clear the tax office still views SMSF auditors as their eyes and ears within the industry and it believes most auditors are doing a good job. It is looking to support auditors where they are able to, but it will also continue its monitoring activities to ensure high standards of audits are carried out.
