Welcome and introductions
Alister Boyes, the new co-chair for the group opened the meeting with an Acknowledgement of Country.
No conflicts of interest were declared and members were advised the key messages from the July 2024 meeting have been distributed and published.
Action item updates
Action Item 01.04122023 – Auditor Approach to Non-Arm’s Length General Expenses
ATO consultation is underway on draft guidance to clarify how non-arm’s length expenditure (NALE) and super contributions impact self-managed super funds (SMSFs) and small Australian Prudential Regulation Authority regulated funds. Public consultation on Law Companion Ruling LCR 2021/2DC Non-arm's length income - expenditure incurred under a non-arm's length arrangement and Draft Taxation Ruling TR 2010/1DC2 Income tax: superannuation contributions closes on 24 January 2025.
As the consultation period is still open, we are currently limited in the information and guidance that can be provided to SMSF auditors.
In response to feedback from this group, the ATO is proposing additional website content to provide guidance to SMSF approved auditors on minimum audit checks when considering NALE. This draft content will be distributed to members post-meeting. Feedback on the content is welcomed and should be provided by 31 January 2025.
Action Item 04.04122023: Web content on section 82 of the SIS Act
The ATO is undertaking a major web content review. Part of this review will be to examine the SMSF auditor content and in-house asset content.
Member feedback provided in the July 2024 meeting in relation to section 82 of the Superannuation Industry (Supervision) Act 1993 has been considered in the drafting of web content.
Action Item 01.02072024 – Auditor Contravention Report reporting expectations in relation to market valuations and custodian reports
This action item was created following feedback by members at the July 2024 meeting in relation to Part A and Part B reporting in the independent auditors report (IAR) with specific reference to market valuations and custodian reports. We recognise and have considered feedback on the challenges of gathering appropriate evidence in this situation.
The following proposal was made to the group to address the issue.
It is proposed to include a mechanism in the auditor contravention report (ACR) instructions that allows auditors to use their professional judgement to determine if an ACR is required when they modify the IAR in relation to the market value of assets held by service organisations.
To achieve this, it is proposed to add the paragraphs below under the Professional Judgement section in the ACR reporting criteria.
A specific scenario where you may use your professional judgement in deciding whether to lodge an ACR is in relation to market value [Regulation 8.02B of the Super Industry (Supervision) Regulations 1994] contraventions for assets held by service organisations. ASA 402 is relevant in determining the audit procedures required for this type of asset.
If after performing the audit procedures you conclude that the risk of a Regulation 8.02B contravention is low, however you are unable to obtain sufficient appropriate audit evidence in accordance with ASA 402, you may use your professional judgement to determine if an ACR is required.
The risk may be considered low if the modification of Part B of the IAR is solely by virtue of a modification of Part A, due to the inability to obtain sufficient appropriate audit evidence over the rights and obligations assertion of investments managed by a service organisation, leading to the inability to ensure the assets have been reported at market value.
If you have qualified Part B of the IAR for a Regulation 8.02B contravention that otherwise meets the reporting criteria and do not lodge an ACR, your audit file should clearly explain the procedures performed and evidence relied on to conclude the risk of a contravention is low.
A member asked a question on the type of documentation that the ATO would expect to see in an audit file to support the professional judgment of an auditor to not lodge an ACR. We advised that the auditor would need to follow the guidance in ASA 402 in relation to the audit procedures performed and the evidence gathered. The tests performed and evidence gathered may vary depending on the type of investment and records kept by the SMSF.
Feedback from members is welcomed on this proposal. The ATO is preparing to update the ACR instructions in the first half of 2025.
Compliance and engagement program
The ATO tabled its SMSF auditor compliance and engagement report for the period 1 July 2024 to 30 November 2024. The report identified:
- A record number of auditors referred to the Australian Securities and Investments Commission (ASIC) in the 2023–24 financial year and a similar trend identified during the 2024–25 financial year.
- A notable rate of voluntary registration cancellations by auditors after the commencement of ATO compliance action.
- In-house audit reviews continue to be a major focus of compliance work.
- The effectiveness of the market valuation program in changing trustee behaviour. Follow up auditor compliance action will commence in 2025.
The main issues identified from compliance cases includes:
- a failure of the auditor to check that trustee declarations have been signed and retained under regulation 104A
- lack of confirmation from the auditor that transactions are conducted at arm’s length under section 109
- a failure of the auditor to obtain sufficient appropriate audit evidence or adequately document that the fund complied with the in-house asset rules under sections 82,83 and 84
- a failure of the auditor to adequately check whether the fund has any borrowings per section 67.
A new review product has been deployed for treating high volume auditors. The purpose is to engage with auditors who audit more than 1,000 funds per year. Field visits have been conducted in Melbourne, Sydney, and Perth.
Upcoming programs of work include:
- trustee disqualification reviews
- reciprocal audit reviews
- professional Indemnity Insurance and Continuous Professional Development reviews.
ASIC
ASIC continues to action ATO referrals of SMSF auditors. 17 SMSF auditors have been referred to during the period 1 July 2024 to 30 November 2024.
ASIC’s professional registers have moved to the ASIC Professional Registers SearchExternal Link. These registers provide information about ‘professionals’ including liquidators, auditors, and licensees.
Auditing and Assurance Standards Board
The Auditing and Assurance Standards Board (AUASB) is continuing work on its domestic and international agenda.
Domestically, this has focussed on Sustainability Assurance including the finalisation of Exposure Draft (ED) 02/24- Proposed Australian Standard on Sustainability Assurance ASSA 5010.
Internationally, the IAASB has issued ISSA 5,000 -International Standard on Sustainability Assurance. The AUASB will look to adopt this standard in Australia as a legislative instrument.
An internal review of all AUASB guidance statements is underway to consider relevance to users and to determine if current content is still fit for purpose. Stakeholder consultation will commence in the first quarter of 2025.
Member comments
Market valuation
A member asked a question relating to the challenges faced when an SMSF has an investment in an unlisted trust and there are delays in the SMSF receiving the unlisted trust’s financial reports to determine market value. We noted there are multiple ways to establish the market value of assets and it’s the trustee’s responsibility to ensure they can demonstrate the assets are valued at market value.
A member asked a question relating to the reporting of regulation 8.02B contraventions in the ACR. Will the ATO be considering a risk-based approach and will there be consideration given to changing the reporting criteria for the financial threshold test in tables 1A and 1B of the ACR. We advised that the guidance on Type 2 reports has provided clarification in relation to certain aspects of regulation 8.02B. The ATO is observing shifts in behaviour with trustees increased diligence on gathering market value information and providing this to their auditor, negating the requirement to lodge an ACR. We are aware of suggested changes for the reporting criteria but there are no plans to change the reporting criteria for the financial threshold tests.
Crypto assets
Will the ATO publish any guidance on crypto assets to support SMSF auditors? We advised that guidance on this asset class is on the ATO’s future program of work.
Regulation 4.09A – Separation of assets
A member asked about future ATO website guidance on Regulation 4.09A – Separation of assets. It is anticipated that ATO website guidance on Regulation 4.09A will be published during the first half of 2025.
Other business
The group will be undergoing a membership refresh, and we will write to members and member organisations in relation to this refresh in early 2025.