Before you submit your annual tax return – the last step in the process is the auditing phase. The job of an SMSF Auditor is to provide an independent opinion that the assets of the fund actually exist, they are recorded at market value each financial year, and that the fund is being conducted in accordance with the Australian Auditing Standards and Superannuation (Industry) Supervision Act (SIS Act) and Regulations. Auditors are required to make a judgement on whether the fund is compliant with the SIS Act and Regulations, and in particular circumstances report any breaches to the ATO via an Auditors Contravention Report (ACR).
In recent years the spotlight has remained focused on SMSF Auditors thus leading to a higher degree of attention to detail when classifying investments and making the appropriate disclosures. Recent court rulings found SMSF Auditors primarily liable due to errors made or breaches left unreported.
What are the legal responsibilities?
According to Super Concepts,
“As a trustee, you are required by the SIS Act to have your fund audited every year. The Australian Auditing Standards, SIS Act and ATO requirements dictate what is required to be done when the audit is undertaken. There are over 30 auditing standards applying to an SMSF and the SIS Act has at least 29 sections and regulations which form part of the audit”.
When completing an audit – if the SMSF auditor comes across a possible breach to the standards they must analyse it against 7 different tests to determine whether it is necessary to report it to the ATO – if so, they must complete an ACR.
If an SMSF Auditor fails to follow the standards and takes shortcuts, they are not only exposing themselves but also their accounting clients. Recent court cases have examined the extent of an auditor’s responsibilities and the penalties imposed when the audit is superficial.
How does one engage an auditor?
A ‘Terms of Engagement Letter’ is required to lay out the roles and responsibilities between the trustee and the auditor. It is in the trustee’s best interest to ensure the Terms of Engagement is correct and clear to avoid unnecessary misunderstandings and ensure all relationships are clearly defined. This avoids common confusion that can occur surrounding what the auditor provides as feedback, e.g. commenting on something missed in the fund’s tax return or where a member statement contains incorrect information.
Be aware that it is vital to choose an auditor wisely as if you are unhappy with your SMSF auditor it is not as simple as just switching to a new one – as the Terms of Engagement letter acts as a contract between the trustee and auditor. This must be signed and agreed to before the audit is initiated. Additionally, if the auditor identifies a compliance breach and you “opinion shop” to another for an unqualified opinion, think again. Once the audit has commenced there’s no turning back as the auditor is obliged to finalise the audit under the Terms of Engagement and Australian Auditing Standards. Also, opinion shopping compromises auditor independence and you may end up being audited by the ATO depending on the breach involved.
An effective and professional SMSF auditor will ensure all roles of each party as clearly defined and all involved take diligent and thorough steps to work in line with their professional and legal obligations.
Acknowledgements and for more information, go to SuperConcepts or contact Walker Wayland NSW’s Audit & Assurance team for assistance.