The case findings provide a reminder to all audit practitioners about the requirements to comply with all relevant Australian Auditing Standards during the conduct of an audit, in particular; ASA 500 – Audit Evidence.
As an auditor it is imperative that pursuant to ASA 500, the auditor must obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base his or her audit opinion. It was found by the NSWCA that the “unsecured loan” being inappropriately classified in the SMSF financial statements as “cash”, had affected the trustees understanding of the liquidity of the loan and the ease in which it would be for the Trustee to call upon the loaned monies.
A misclassification of this manner can have a substantial impact on the end users ability to interpret a set of financial statements, whether it be the Trustees, members, or other third-party users. Furthermore, the audit evidence obtained to support this loan, in particular the recoverability of the unsecured loan, appeared to be insufficient according to industry standards. The auditor not having obtained sufficient and appropriate audit evidence to support the recoverability of the unsecured loan, and issuing an unqualified audit opinion with no further communication to the trustee would not be considered the best audit practice.
The key issues raised from this Court of Appeal decision are:
1) the importance of ensuring that all audit practitioners are conducting audits in accordance with the specified Australian Auditing Standards,
2) auditors are using professional scepticism and professional judgement when considering the classification and recoverability of SMSF assets, and
3) The onus rests with the SMSF auditor to issue a qualified Part A or Part B audit opinion, with regards to the classification and recoverability of items in the financial statements, which ultimately resulted in the financial loss being incurred by the trustee.