Actions speak louder than words and the ATO has demonstrated they are serious about enforcing the highest possible standard in SMSF audits.
To begin their quality enforcement program, the ATO chose to review the top 100 auditors who are responsible for auditing 33% of all SMSFs, representing $186 billion in assets. The ATO strategy was to begin their review with the group of auditors who audit more than 500 funds a year and on average 1500 SMSFs each. The goal is to ensure that this large proportion of SMSFs receive a "proper and adequate audit and that this group of auditors are meeting their statutory obligations."
The ATO review program began in FY 2019 and is expected to be completed by June 2020 so it's interesting to gain insights from the results so far. Of the 51 auditors examined to date:
10 were fully compliant
36 required further education
3 voluntarily deregistered
2 were referred to ASIC for further action.
Are there enough quality Auditors? The ATO has reported that only 10 auditors (less than 20% of those examined to date) are fully compliant. This raises the question whether quality auditors are a scarce commodity? Are there enough specialist auditors for our sophisticated and evolving regulatory framework?
More than 66% of auditors reviewed were found to require further education. Is there enough emphasis on - and appreciation of - specialist knowledge and audit skills, especially given the increasing levels of change and complexity in our super system?
After all, the price of an audit is meaningless if the audit was not properly and adequately undertaken.
The importance of quality audit processes Quality audits require professional expertise as well as rigorous, yet also efficient, systems and processes.
“A particular focus of a top 100 SMSF auditor compliance review is to understand and gain assurance about the methods, processes and controls in place that allow the SMSF auditor to sign off on a large number of audits annually,” the ATO said.
Of the 36 auditors requiring further education, 23 were found to have not obtained sufficient appropriate evidence verifying the fund’s compliance with the super laws.
Areas of concern among this group were failing to obtain objective and supportable data in the valuation of unlisted assets, failing to obtain the loan agreement or bare trust deed for an LRBA and not obtaining sufficient valuation evidence for collectibles held within an SMSF.
Evaluations of evidence were also lacking on some audit files with respect to whether loan or lease agreements were between related parties and whether the terms were arms length.
“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.”
Want to know more about quality audits? SaulSMSF is proud to be one of the ten fully compliant audit firms already reviewed by the ATO. As a trusted and fully compliant Australian owned and operated SMSF audit firm, we would be happy to have a complimentary meeting with you to discuss how we can improve your audits to ensure quality outcomes for your practice.
If you'd like more information, please contact Saul SMSF.