ATO warns SMSF auditors on reciprocal audit arrangements

The ATO has warned SMSF auditors that, in its view, no safeguards can reduce the threats to auditor independence from reciprocal auditing arrangements.

The ATO says that “blatant independence breaches”, including an auditor auditing their own SMSF, has attracted the attention of the tax office in the past. But the ATO’s focus has broadened to include “other less obvious independence risks”.

Number of approved SMSF auditors continues to decline in 2017/18

The number of approved SMSF auditors continues to decline, reaching a new low of 6,039 at the end of 2017/18 according to the latest ASIC figures.

The number of SMSF auditors is at its lowest point since they started to be registered with ASIC for 2013/14.

Number of approved SMSF auditors 2013/14 to 2017/18

Data source: ASIC Annual Report 2017/18

The number of SMSF auditors currently could be lower, with a number of disqualifications occurring, including 3 last week alone. These disqualifications have largely been for independence issues, such as auditing their own funds or the funds of family members.

ASIC says in its 2017/18 annual report that 155 SMSF auditors were removed from the register. 12 of these were disqualifications, 117 were for failing to lodge the annual statement, and 26 were voluntarily requested cancellations – after concerns were raised by ASIC. In each of these areas the number of removals was lower than the previous year. ASIC also imposed conditions on the registrations of 9 SMSF auditors.

SMSF auditor registrations cancelled 2016/17 to 2017/18

Since becoming responsible for registering SMSF auditors, ASIC says it has disqualified 76 auditors. One SMSF auditor had their registration suspended for a period, and 24 had conditions imposed on their registration. The reason for these actions included not meeting the auditor independence requirements, not complying with the auditing standards, not identifying or reporting non-compliance or not meeting the ‘fit and proper’ person test.

ASIC Commissioner John Price said that SMSF auditors “perform an important role in giving independent assurance over fund financial reports and reporting non-compliances with fund requirements”.

“As gatekeepers, they are expected to adhere to the highest standards in the performance of their role. ASIC will continue to take action where the conduct of SMSF auditors is inadequate,” he said.

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Bills to increase fees on SMSF auditors introduced to Parliament

The Government has introduced Bills to Parliament to implement a fee-for-service model for ASIC, which includes substantial increases in fees for SMSF auditors.

“No longer will Australian taxpayers have to subsidise any difference between the fee an entity pays and the actual costs incurred by ASIC, ensuring ASIC’s costs are borne by those that have created the need for it,” said Minister for Revenue and Financial Services, Kelly O’Dwyer.

“The industry funding model promotes equity, encourages greater regulatory compliance, and enhances ASIC’s transparency and accountability. These Bills will strengthen ASIC’s capabilities to ensure it is an effective regulator.”

Minister O’Dwyer said the ASIC Industry Funding Model will commence on 1 July 2018.

The Superannuation Auditor Registration Imposition Amendment (ASIC Fees) Bill 2018 would raise the cap on fees ASIC can charge SMSF auditors from $1,000 to $3,000. This is reduced from the draft Bill, which had the cap at $5,000.

The Superannuation Industry (Supervision) Amendment (ASIC Fees) Bill 2018 would allow for fees to be charged for applying for an SMSF auditor registration to be cancelled and for applying to conditions on a registration to be varied or revoked.

The actual level of fees will be set in regulations, but it appears that under the funding model several fees applicable to SMSF auditors will increase dramatically. Based on draft regulations released the Government plans to increase the fee to register as an SMSF auditor from $107 to $1,927. The fee to cancel a registration would go from nil to $899.

The level of the fees, and the fee for cancelling an SMSF registration, has been criticised by the accounting body CAANZ.

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Draft ASIC fee regs has $899 fee to cancel SMSF auditor registration

The Government has released draft legislation and regulations to implement an industry-funded, fee-for-service, model for ASIC. These include substantial fees to register as an SMSF auditor – $1,927 – or cancel a registration – $899.

“The Turnbull Government is committed to ensuring that ASIC has the resources and powers it needs to combat misconduct in Australia’s financial services industry and bolster consumer confidence in the sector,” said a statement from the office of Minister for Revenue and Financial Services, Kelly O’Dwyer.

“The introduction of the ASIC industry funding model was a key recommendation of the Murray Financial System Inquiry and is a critical component of the Government’s reforms to strengthen ASIC and better protect Australian consumers.”

One of the draft Bills would increase the cap on the maximum fee that can be charged to approved SMSF auditors from $1,000 to $5,000.

If the regulations proceed as drafted the highest SMSF auditor ASIC fee will be Applying for registration as an approved SMSF auditor, which would increase from $107 to $1,927*. This is lower than what Treasury originally proposed – $3,429, which CAANZ called “seriously excessive”.

The accounting body also took issue with the new fees which would be created by the regulations:

  • Applying for conditions imposed on registration as an approved SMSF auditor to be varied or revoked under section 128D of the SIS Act – $1,028
  • Applying for registration as an approved SMSF auditor to be cancelled under section 128E of the SIS Act – $899
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    ATO refers more SMSF auditors to ASIC than in whole of prior year

    The ATO has already referred more SMSF auditors to ASIC in 2017/18 then it did in the whole of 2016/17.

    James O’Halloran, ATO Deputy Commissioner for Superannuation, said that the ATO had so far referred 30 SMSF auditors to ASIC over concerns in 2017/18, compared to 22 in 2016/17.

    “These results perhaps reflect our increased focus on auditor assurance and have been built on again this year as we focussed on high-risk areas such as auditors who appear to be auditing funds where they have had a role or responsibility for preparing the accounts and financial statements, low-cost auditors, auditors who appear to be auditing relative’s funds and similar actions,” Mr O’Halloran told the SMSF Association National Conference 2018.

    “Some 24 of the 30 auditors referred had issues identified relating to insufficient evidence, and 22 of those 24 also had independence issues,” he said.

    “By way of background, we had earlier contacted some auditors with our concerns because they appeared to also be involved in preparing the accounts and financial statements of funds they audited.”

    O’Halloran said the ATO has been conducting ‘full audits’ of these SMSF auditors.

    He said generally the auditors were the sole registered auditor in the business, but often had staff. Typically the staff prepare the accounts and financial statements and they are signed off by the auditor or another senior staff member.

    “In our view this still creates an independence issue because the staff report directly to the auditor who is the sole practitioner,” said Mr O’Halloran.

    “Additionally, in all our audit cases we’ve started looking at compliance with CPD requirements and found some gaps there as well which we are highlighting to ASIC.”

    “So, further to increasing our assurance reach to more auditors, this year we are visiting approximately 300 auditors who we have assessed as having an indicator of risk. These visits will be used to either gain an overall level of assurance that their processes and practices are appropriate or identify issues or gaps that need to be addressed.”

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    Proposed higher ASIC SMSF auditor fees “seriously excessive”: CAANZ

    The proposed increases to ASIC’s fees for SMSF auditors are “seriously excessive”, says Chartered Accountants Australia and New Zealand (CAANZ).

    Late in 2017 Treasury consulted on the introduction of a fee-for-service model for ASIC. Part of this includes substantial increases to the fees for SMSF auditors, increases which CAANZ calls “seriously excessive” in its submission.

    The fees which are of “particular concern” to CAANZ are the application for registration as an SMSF auditor – a proposed increase from $107 to $3,429 – an application to cancel registration as an SMSF auditor – proposed increase from $0 to $899 – and the application to vary conditions imposed on SMSF auditor registration – proposed increase from $0 to $1,028.

    “Establishing ongoing fees at this level of activity will significantly impact the ability of the profession to attract and develop appropriately qualified talent, making it difficult to continue to provide the essential assurance services the SMSF sector needs now and encourage growth and innovation in the future,” says CAANZ.

    The accounting body says the magnitude of the SMSF auditors registration fee will discourage new SMSF auditors, making it difficult to adequately service the sector. The fees for cancelling an SMSF auditor registration are “inappropriate”, as they actively discourage auditors who find it inappropriate to continue registration from cancelling.

    “We therefore recommend that the application of the industry funding model to the fees in the SMSF auditor subsector be reconsidered and the fees substantially reduced.”

    “We consider that the Corporations (Fees) Regulations 2001 should continue to specify all ASIC fees regardless of whether they are determined on a cost-recovery basis. This way stakeholders have a single point of reference for all the fees. However the regulations should ensure that the ‘cost recovered’ and ‘non cost recovered fees’ are clearly distinguished.”

    The Institute of Public Accountants (IPA) says the increase would have a “detrimental impact” on the number of SMSF auditors, and particularly impact small firms and sole practitioners.

    “It would be an understatement to say that IPA members are bewildered and disappointed with this huge increase,” said the IPA, in its submission.

    “Even though it won’t impact existing auditors, it may impact those who had planned to become auditors, especially since many won’t have an established client base.”

    “For those who are specialized or highly specialized, including sole practitioners or small firms, it will mean absorbing the cost increase as some feel the cost cannot be passed on; while others expect to pass on the cost to clients. It remains to be seen if the additional cost can be passed on in an environment where many clients are seeking discounted prices and especially given the mounting costs on trustees.”

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    Number of approved SMSF auditors continues to decline in 2016/17

    The number of approved SMSF auditors continues to decline, according to the latest ASIC data.

    ASIC notes that the number of SMSF auditors has continued to fall after the initial spike in 2014. Since 1 July 2013 SMSF auditors have been required to be registered and approved by ASIC.

    In 2016/17 ASIC approved 79 SMSF auditors, had 62 applications withdrawn, refused one application and cancelled 406 registrations.

    Correction: There appears to be an error in the ASIC report. The below chart is based on Table 14 in the report. However the figure of 6,639 does not equal the figure for the prior years plus approvals less cancelled. The correct figure is likely 6,344 – which is supported by the chart in the ASIC report, though there appears to be discrepancies in earlier years as well. Apologies for this oversight, it should have been picked up in drafting instead of being raised by a reader.

    Of these 406, 238 were cancelled for failing to lodge the annual statement, 162 were cancelled at the request of the SMSF auditor – the reasons for this a not collected, but could include retirement or change of career. 4 were cancelled following action by ASIC – three were found to not be fit and proper persons and one was not an Australian resident – and two were cancelled for failing to comply with the conditions of their registration.

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    AAT upholds ASIC decision to disqualify SMSF auditor

    ASIC disqualification approved SMSF auditor, AAT upholds decisionThe Administrative Appeals Tribunal (AAT) has upheld a decision by ASIC to disqualify an approved SMSF auditor.

    In October 2015 ASIC made an order disqualifying Abe Samuel from being an approved SMSF auditor. Mr Samuel requested that ASIC reconsider this decision. ASIC confirmed the decision in November 2015 and announced the disqualification in early December 2015. ASIC says it found that Mr Samuel had breached the APES 110 independence requirements by being a member of a fund he audited and the director of its corporate trustee. ASIC also found he held the power of attorney for, and was a relative of, a member of a fund he audited.

    On 18 December 2015 Mr Samuel applied to the AAT for a review of the disqualification decision. ASIC’s decision was upheld by the AAT on 9 September 2016.

    A statement by ASIC quotes the AAT as saying that Mr Samuel: “plainly breached the auditor independence requirements in APES 110 (Code of Ethics for Professional Accountants). As a consequence, he contravened his professional obligations under s128F of the Superannuation Industry (Supervision) Act 1993.”

    He also: “failed to carry out or perform adequately and properly the duties of an auditor under the Act or the Regulations or as otherwise required by law; and, furthermore or alternatively, the Applicant (Mr Samuel) is not a fit and proper person to be an approved SMSF auditor for the purposes of the Act.”

    The AAT said that ASIC’s decision was upheld due to “the very serious and fundamental nature of the applicant’s (Mr Samuel’s) deficiencies; his longstanding and ongoing failure to understand properly those deficiencies; and the clear need to uphold the integrity of the SMSF system”.

    Following the AAT decision, ASIC Commissioner John Price said: “To safeguard the SMSF sector, ASIC will continue to use its power to disqualify approved SMSF auditors that don’t perform their role adequately and meet professional standards.”

    ASIC says that SMSF trustees and members can check the registration status of the SMSF auditor, or if a person has been disqualified, on the ASIC SMSF auditor register.

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    ASIC “simplifies and improves” SMSF auditor registration process

    ASIC, SMSF auditors, simplifies registration processASIC has made changes which it says “simplifies and improves” the registration process for prospective SMSF auditors.

    ASIC has released template documents “to enable applicants to provide the required level of detail about their experience”. These documents include a Statement from applicant, Audit hours logbook and Statement from supervisor.

    “The changes will make it easier for applicants to provide all required information with their application. This will reduce red tape and save time for applicants as ASIC will generally not need to seek further details about their experience,” said ASIC.

    “Applicants are encouraged to use the application checklist provided via the website, to ensure that they submit a complete application. Incomplete applications will be returned and they will need to re-apply.”

    ASIC Commissioner Greg Tanzer said: “ASIC is continually reviewing how we can improve the services we provide the community. If we can reduce the time required for what should be straightforward auditor registrations, this allows us to assess an application faster with the benefit of all information being available from the outset.”

    Since 1 July 2013 SMSF auditors have been required to be registered with ASIC.

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    Registration of 133 SMSF auditors cancelled by ASIC

    ASIC cancels registration SMSF auditors, annual statementsASIC has cancelled the registration of 133 approved SMSF auditors who didn’t lodge their annual statements.

    “ASIC had alerted these auditors on a number of occasions that their registration would be cancelled if their outstanding statements were not lodged with fees paid,” said a statement by ASIC.

    In July ASIC issued a “final warning” to 185 approved SMSF auditors who had yet to lodge their outstanding annual statements.

    “SMSF auditors have had ample time to come to grips with their responsibilities. Auditors who do not ensure that they are aware of and meet their obligations face the risk of losing their registration. An unregistered auditor is not permitted to audit an SMSF. Conducting an audit of an SMSF when not permitted to do so may have further serious consequences for the fund and the auditor,” said ASIC.

    Since 1 July 2013 SMSF auditors have been required to be registered with ASIC. “This was to ensure that all SMSF auditors at least meet the base standards of competency and expertise,” says ASIC.

    “Approved SMSF auditors need to lodge an annual statement with ASIC within 30 days of the annual anniversary of their registration. ASIC sends email notifications on anniversary dates advising that annual statements are ready for completion. If an extension of time to lodge the annual statement is required, a written request to ASIC must be made before the due date. An annual statement is not considered to be lodged until the required lodgement fee has been paid.”

    ASIC says that SMSF auditors can confirm if they have lodged their annual statement using ASIC Connect. SMSF trustees can check if their auditor is registered using ASIC’s SMSF Auditor register.

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