ATO audit of large SMSF auditors finds only 20% fully compliant

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An ATO audit of very large SMSF auditors has found only 20% were fully compliant.

The ATO has a focus on the top 100 SMSF auditors, which audit 33% of all SMSFs – with each auditing an average of 1,500 SMSFs and none auditing less than 500 funds a year.

At the end of 2018/19, the ATO completed a review of 51 of the top 100 SMSF auditors based on three to five SMSF audit files from each auditor.

The results are not encouraging, with only 10 of the 51 auditors found to be “fully compliant and no further action was necessary”, in the ATO’s view.

Three SMSF auditors chose to voluntarily deregister after the ATO started the review. The ATO referred two auditors to ASIC – the regulator for SMSF auditors – because they “failed to obtain sufficient appropriate audit evidence to verify the fund’s compliance with the relevant super laws”.

For the remaining 36 SMSF auditors, the ATO found that “further education” was required. Of this group, 23 failed to obtain sufficient evidence that the fund was complying with super laws (including valuations for unlisted unit trustees, evidence for LRBAs, and evidence for collectibles), 7 did not have signed financial statements in their audit files, 4 failed to retain all signed engagement letters or trustee representation letters, 4 failed to identify that assets were not in the right name, and two had identified “immaterial” breaches but failed to tell the SMSF trustees.

These SMSF auditors who received an ‘education outcome’ will be monitored and reviewed in the next couple of years, the ATO said.

“If we find they’ve failed to improve their auditing processes, they may be referred to ASIC for further action. ”

While noting that the deficiencies by the auditors did not rise to the level of a referral to ASIC, the ATO said: “We’re concerned that some auditors failed to obtain sufficient appropriate audit evidence or failed to evaluate the evidence in order to demonstrate how the auditor arrived at their opinion on the financial and compliance audit.”

“We’re also concerned with the number of unsigned financial statements we found and the lack of other documents that should be on the audit file, such as a signed trustee representation letter, engagement letter and in some cases, a management letter.”

The ATO is hoping to complete reviews of the remaining 49 auditors by the end of June 2020.

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