On 13th April 2023, ASIC announced actions against 11 SMSF auditors for breaches of their obligations, including breaches of auditing and assurance standards, independence requirements, registration conditions, or because ASIC was satisfied the individual was not a fit and proper person to remain registered.
Over the period 1 October 2022 to 31 March 2023, ASIC:
- disqualified seven SMSF auditors;
- imposed additional conditions on three SMSF auditors; and
- cancelled one SMSF auditor.
Ten of these auditors were referred to ASIC by the Australian Taxation Office (ATO). One SMSF auditor did not comply with conditions imposed by ASIC on their SMSF auditor registration.
This follows the cancellation of 374 SMSF auditors in January 2023 after a review of outstanding annual statements overdue to be lodged by 1,400 SMSF auditors. Based on data obtained from the Australian Taxation Office, the cancelled SMSF auditors had not performed a significant number of SMSF audits in the past two to three years.
In mid 2022, ASIC announced the outcome of 18 ATO referrals involving auditors who contravened the independence requirements because of their involvement in reciprocal audit arrangements. Each of the reciprocal audit arrangements involved 2 SMSF auditors who audited each other’s personal SMSFs.
Despite ASIC sanctions and active ATO direct engagement with SMSF auditors who are at risk of losing their registration, some SMSF auditors are continuing to fall foul of industry standards. Auditors need to ensure that they’re following current standards and code of conduct.
ASIC Commissioner Sean Hughes has advised, ‘SMSF auditors have a fundamental role in promoting confidence in the SMSF sector. ASIC will apply a range of regulatory tools against SMSF auditors who fail to meet the independence and auditing standards or whose conduct calls into question the integrity of SMSF audits.’
A recent analysis (2022) of SMSF auditors by Paul Delahunty, ATO Director, showed that:
- The current population of approved SMSF auditors is just over 5,300.
- Over 95% of auditors completed under 500 audits for the 2020 year.
- 85% of auditors have an individual Tax Agent registration.
- Over 90% were a member of a professional association when they became registered as an SMSF auditor.
- 27% have sat the AISC exam
- 50% of auditors are above the age of 60
- 48% of auditors have their own SMSF
Mr Delahunty noted a key ongoing concern in relation to non-lodgement of SMSF annual returns, stating that ‘without lodgement we have no visibility of the fund’s compliance with its regulatory and tax obligations or the superannuation balances of its members.’
Specifically
- there were 34,000 funds who had never lodged their first return
- a further 60,000 lapsed lodgers had one or more outstanding returns
ATO analysis suggests that lapsed lodgement may be due to trustees experiencing difficulties but it’s often an indicator of broader issues. For example, when an SMSF has an unrectified regulatory contravention, it can be a precursor of failing to meet their lodgement obligations in subsequent reporting periods. SMSF auditors need to be aware of any issues preventing them from lodging returns on time.
It’s clear that the vast majority of SMSF auditors are doing the right thing. However, the knowledge, skills and experience required to practice in a strong regulatory environment can be challenging for sole practitioners who appear to make up the majority of registered SMSF auditors.
It’s likely that in the next 5 years, many SMSF auditors will retire from public practice or relinquish their auditing registration. They will be seeking qualified auditing specialists to take over the management of their clients.
The National Audits Groups are specialists in navigating the rules associated with the management and auditing of Self-Managed Super Funds. The days are gone where generalists can effectively advise clients in relation to SMSF legislation and trustee responsibilities. A broad range of experience and skills is required to provide the best advice to clients.
If you’d like further information on how the issues raised in this article affect your clients, contact the team at National Audits Group.
James Song, SMSF Audit Manager | National Audits Group | www.audits.com.au
James has solid audit experience in Self-Managed Superannuation Fund (SMSF) includes complex areas such as derivatives, instalment warrants, exotic assets, private companies and unit trusts, these involve a high level of testing for compliance with regulations and considerations of risk.
