Not long after ATO deputy commissioner James O’Halloran flagged an SMSF crackdown at the 2018 National SMSF Conference, ASIC announced a raft of regulatory actions in the sector.
Specifically, ASIC said that it had “considered the conduct” of over 120 SMSF auditors, 98 of which were referred from the ATO. 76 auditors have been removed from the register, one has been suspended temporarily and 24 had conditions imposed upon them.
What were the main concerns?
Independence requirements
In some cases, auditors were auditing their own funds in addition to the funds of family members and business partners. Some also audited funds “for which the auditor has also been responsible for preparing accounts or financial statements.”
Auditing standards compliance and reporting
Some auditors didn’t plan or properly conduct their duties. Others weren’t obtaining sufficient appropriate audit evidence or adequately documenting audit work.
“These cases included deficiencies in auditing asset values and the treatment of limited recourse borrowing arrangements in fund financial reports,” ASIC added. Other issues included failure to report “non-compliance with fund trustee composition and ownership of assets requirements, as well as the sole purpose test.”
Being a “fit and proper person”
Where auditors were found not to be “fit and proper,” it occurred in circumstances where they provided false and misleading statements, were insolvent or involved in fraud. Other issues included “not managing their own tax compliance, not cooperating with enquiries by the ATO or ASIC, and breaches of their duties as a registered company auditor.”
How are these issues being addressed?
Beyond outright bans, ASIC has made restrictions on funds that can be audited; limited the number of funds under an auditor’s remit; required peer reviews of audits; mandated additional training requirements; imposed stricter reporting timeframes; and required auditors to pass the SMSF auditor competency exam.
What does this all mean?
ASIC commissioner John Price said that SMSF auditors “perform an important role in giving independent assurance over fund financial reports and reporting non-compliances with fund requirements.”
“As gatekeepers,” Price continued, “they are expected to adhere to the highest standards in the performance of their role. ASIC will continue to take action where the conduct of SMSF auditors is inadequate.”
Given the increased regulatory focus on the sector, it’s probably a good time for any SMSF clients to review their auditing arrangements.
The opinions expressed in this content are those of the author shown, and do not necessarily represent those of No More Practice Education Pty Ltd or its related entities. All content is intended for a professional financial adviser audience only and does not constitute financial advice. To view our full terms and conditions, click here.
