ASIC action highlights auditor requirements

When ASIC publishes details of action they have taken against SMSF auditors, it's always interesting to review the reasons why they did so.

Unfortunately, independence continues to be an issue but of more interest to me are the issues particular to the audits reviewed by the ATO and ASIC.

The issues identified by ASIC from the review of just two auditors highlight the wide scope of the two opinions (financial and SIS compliance) SMSF auditors have to give, the technical issues on which they have to form an opinion, and the evidence requirements which are mandatory under the SIS legislation.

Consider the following from those two auditors:

• Failing to comply with auditing and assurance standards by:

• not obtaining sufficient evidence to support:
• the ownership and market value of property
• a borrowing arrangement met applicable restrictions
• the storage of collectables
• a fund’s claim for exempt current pension income
• share sales and a capital gain
• that five funds met the definition of an SMSF
• being in compliance with arm’s length provisions
• holding assets separate to those held personally by trustees

• not verifying employer contributions over the concessional cap or considering if a member was liable to pay tax on the excess amount;

• not verifying an in-house asset identified by the fund accountant;

• not issuing an engagement letter or obtaining written trustee representations for one fund audit;

• not communicating matters to the trustees, retaining signed financial statements or issuing auditor’s reports in the approved form

• not obtaining sufficient evidence to support compliance requirements relating to:

• fund structure
• trustee declarations
• signed financial statements
• keeping minutes
• borrowings
• investment strategies.

The list is extensive but represents only a small selection of the issues SMSF auditors must consider. Remember, auditors must provide opinions on the financial statements and compliance with twenty sections of the SISA and twelve regulations of the SISR, at the same time ensuring they comply with approximately 40 Australian Auditing Standards and a few Assurance Standards.

The findings above illustrate to accountants and trustees why auditors must ask for information during the audit. 

There are evidence requirements under the auditing standards auditors simply must adhere to, though with a requirement for audit evidence to be sufficient and appropriate, it can be grey area as to how much is enough.  However, when it comes to SIS compliance, the Australian Taxation Office's expectation appears to be a zero-tolerance policy so applying any level of materiality in the design of procedures is difficult.

So next time you receive a request for information from your auditor, please be mindful of the obligations they face and the ramifications to them, and potentially the trustees, if they fall short.