If you think the superannuation and SMSF rules are rapidly changing, then spare a thought for SMSF auditors who may be facing a number of reforms. Whilst auditing an SMSF may not sound appealing to many, they actually play an essential role to make sure funds comply with the superannuation legislation and can help ensure the fund is not paying unnecessary tax. So, audits do have a valid role to play for SMSFs.
Anyone with a keen interest in current superannuation issues may have seen articles that give a good idea of what’s going on with SMSF audits and auditors. These range from the legal requirements, licensing and compliance issues, as well as auditor independence. In addition, the government is still yet to make a decision about the proposal to audit SMSFs to be changed to once every three years1.
Why is an audit of a superannuation fund important?
Many years ago, and prior to the commencement of the SIS legislation2, the ATO put in place a requirement that superannuation funds should be independently audited for the purpose for which tax concessions were granted3. This original idea has continued and developed significantly so that an auditor’s role for all superannuation funds now forms an integral part of the legislation and requires SMSF auditors to be registered with ASIC.
Under the SIS legislation, the trustee of an SMSF is required to appoint an auditor to provide a report on the fund’s operations for the financial year. The appointment must be made 45 days prior to the time the fund is required to lodge its annual return. Any request for information made by the auditor about the preparation of the report is required to be provided to the auditor within 14 days. Trustees that don’t comply with these requirements may be penalised.
The report by the auditor is required to relate to the fund accounts for the tax year and provide a statement that they comply with the auditor independence requirements, which are published in Australian Professional and Ethical Standard (APES) 1104. SMSF auditors must be registered, undertake CPD, have professional indemnity insurance and comply with the auditor independence requirements, as published in APES 110.
Audit independence
The independence guide has been effective since 1 January 2020 and is mandatory for all audits in Australia. The guide requires firms to comply with the new code to audits for all financial years completed from 1 July 2021. Failure to meet these requirements will result in the ATO referring the firms to ASIC for compliance action.
To be independent under the professional standard, independence is considered to be a situation where the auditor is not compromised in using their professional judgement. Also, that an auditor acts with integrity, objectivity and maintain a degree of professional scepticism when conducting the audit. In addition, the auditor must not place themselves in a position which gives the appearance or impression that a conflict may exist, which could compromise their professional judgement. In other words, when undertaking the audit, the auditor must not be compromised in any way and they avoid situations where a conflict may appear to exist.
The ATO, as the regulator of SMSFs, is currently publishing articles on how they see the new independence standards applying to SMSF audits which are undertaken ‘in-house’ by accounting firms5. In-house audits include situations where the audit, accounting and compliance functions for the SMSF are undertaken by the same firm. The ATO says that the changes to the standards apply where a firm has its accounting and audit divisions reporting to different partners.
According to the ATO, in-house audits may meet the independence requirements only in very limited circumstances. Before the independence standards can be met there are three hurdles that need to be overcome before in-house audits are acceptable. These relate to firms undertaking certain management responsibilities for an audit client and expressing certain opinions on fund accounts apart from providing routine services.
What does this change mean for trustees and the audit of their SMSF?
For many firms a re-evaluation of whether audit, accounting and bookkeeping services can continue to be provided may be required. A firm that is not able to meet the independence requirements may need to reorganise the services they provide or outsource some functions so that the proposed changes can be satisfied.
So, if the firm that audits an SMSF changes sometime this year, trustees should be considerate, and patient given some of the in-house independence issues that may need to be addressed when undertaking an SMSF audit and the services they provide.
Please contact us on ph 07 4659 9881 for more information.
1https://treasury.gov.au/sites/default/files/2019-03/180704-Three-yearly-audit-cycle-for-some-self-managed-superannuation-funds.pdf
2Superannuation Industry (Supervision) Act and Regulations
3IT 2067 (Withdrawn), Australian Tax Office: https://www.ato.gov.au/law/view/document?docid=ITR/IT2067/NAT/ATO/00001
4https://apesb.org.au/standards-guidance/apes-110-code-of-ethics/
5https://www.ato.gov.au/Super/Sup/Our-compliance-approach-to-the-new-Independence-Guide-and-in-house-SMSF-audits/
Important: This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling ph 07 4659 9881, before deciding what’s right for you.
All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person. Any links have been provided for information purposes only and will take you to external websites. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.