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ASIC is responsible for taking enforcement action against auditors who have not met their on-going obligations. On 18th October 2018, the ATO issued PS LA 2018 / 1 This practice statement (PS) sets out what ATO staff needs to consider in determining whether matters concerning approved self-managed superannuation fund (SMSF) auditors should be referred to ASIC. The ATO has been given powers to monitor SMSF auditors compliance with relevant standards and can refer any non-compliant auditor to ASIC for any enforcement action - such as disqualification consideration. This PS sets out guidance to ATO staff when considering the Commissioner's power to refer matters concerning approved SMSF auditors to the Australian Securities and Investments Commission (ASIC).
Fit & Proper Person If the ATO staff is of the opinion that an approved SMSF auditor is not a fit and proper person to be an approved SMSF auditor, or in relation to the conduct of an audit of an SMSF, an auditor has contravened the SISA or the SISR, or has failed to carry out or perform adequately and properly the duties of an auditor under the SISA or the SISR, they may refer the auditor to ASIC. The expression 'fit and proper person' is not defined in the SISA, however the expression has been considered by the courts on a number of occasions. Some of the consideration in deciding a person is a fit and proper person are - their character or reputation - the qualities of honesty, knowledge (or professional competency), and ability (that is, the ability to act appropriately) - the failure to perform any of his or her duties and functions adequately and properly, including auditing funds they were a member of or failing to obtain sufficient evidence or inadequate documentation in support of an audit.
How does ATO know that an SMSF auditor, has contravened the SISA and/or the SISR There are many yardsticks which the ATO uses to check if the SMSF Auditor has contravened the SISA & SISR or has failed to perform adequately and properly any of their required duties and functions. This is done by ATO by reviewing one or more audits of SMSFs conducted by the auditor. During these reviews, the ATO checks if the auditor has: a) failed to identify or report a single contravention; b) not properly discharged duties or functions required by SISA & SISR; c) not followed any Australian auditing standards or any Australian auditing and assurance standards; d) ignored the auditor independence requirements by APES 110 Code of Ethics for Professional Accountants; e) not complied with their professional obligations which include: i) complete the CPD requirements prescribed by regulation 9A.04 of the SISR ii) hold a current policy of PI insurance, of a level prescribed by the regulations Since failure to identify or report a contravention may be trivial in the context of the particular audit, hence the decision to refer an auditor to ASIC will depend on the facts of each particular audit which the auditor conducts.
Lodging Auditor contravention Report (ACR) The SISA requires the ACR to be lodged in an approved form. Not everything needs to be reported, ATO provides criteria that auditors must apply to determine what contraventions of the SISA and the SISR must be reported. The auditor may also have to report other important information on the ACR as required. The approved SMSF auditor must advise the ATO & the trustee when they form an opinion that the financial position of the SMSF may be, or may be about to become, unsatisfactory. ATO may require the auditor to provide information relating to an SMSF which they are reviewing and if the auditor fails or refuses to provide this information, they can be prosecuted and convicted of a criminal offence. This non-compliance can also be a reason for ATO to refer the auditor to ASIC.
What does ATO look at when reviewing Auditors audit files
- Adequate audit documentation to evidence that a proper audit has been undertaken, such as audit working papers; - Approved SMSF auditor is not a trustee of the fund they are auditing - breach of the auditor independence requirements prescribed by regulation 9A.06 of the SISR; - Non-reporting to the trustee or the Commissioner of material contravention. This reporting is generally done by qualifying the audit report or by lodging an ACR. Sometimes the auditor reports a contravention to the trustee in a management letter and / or qualifies the audit report but does not lodge an ACR, this can also be a reason by ATO can refer the approved auditor to ASIC. In my presentation, I will be discussing the various criteria set by ATO which must be reported to them.
What can an Auditor do if ASIC disqualifies him If ASIC disqualifies an SMSF auditor, they can appeal to the Administrative Appeals Tribunal (AAT) and have their case heard. There is only one case of appeal at AAT known to me where the Auditor succeed. In Abichandani and Australian Securities and Investments Commission [2016] AATA 879 (8 November 2016); Senior Member PW Taylor SC set aside ASIC decision and found me to be a fit and proper person. Disqualification in my case by ASIC was due their claim that I had made submissions which were misleading and my conduct was deceptive and I had made some assertions of false evidence in the course of proceedings. ASIC was found to be incorrect in their conclusions. In another appeal case Samuel and Australian Securities and Investments Commission [2016] AATA 696, the AAT upheld a decision by ASIC to disqualify an SMSF auditor who audited funds in which he was a member, and who failed to obtain sufficient evidence and had inadequate documentation in support of his SMSF audits. The Tribunal found the auditor failed to 'comply with two fundamental aspects of auditing: independence and diligence' and 'also failed to demonstrate insight into his critical deficiencies' with conduct falling 'far below the standards expected and required of an approved SMSF auditor'. The Tribunal was satisfied that the auditor failed to carry out or perform adequately and properly the duties of an auditor, and furthermore, or alternatively, the auditor was 'not a fit and proper person to be an approved SMSF auditor'. Manoj Abichandani
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Manoj has worked in SMSF space since 1988. He was providing high level advisory services to over 600 funds in his own 3 partner CPA tax practice for 19 years and has written an online SMSF Audit software. He currently works as SMSF Technical Support Team Leader at www.trustdeed.com.au providing 3rd level suppor tto over 2,000 accountants and advisors on complex SIS Act and Regulation matters.