SMSF Auditors Professional Association Stakeholder Group key messages 5 December 2022

Technical discussion and action items

• Proposed ATO guidance of regulation 4.09A – Two draft papers have been issued to members prior to the meeting. A designated agenda item has been included to discuss the papers further.
• Market valuations guidelines and auditor requirements – The updated market valuation guidance was published on ato.gov.au on 4 November 2022. This action item is now closed.
• Review of Auditor Contravention Report (ACR) reporting criteria – The ATO has now completed its analysis on the extent of reporting on Test 7.

As part of the review, the ATO engaged several members for feedback on the practical issues associated with the application of Test 7 and those members are thanked for their assistance.

The analysis considered the:

• current rate of reporting under Test 7
• extent and degree of reporting obligations it imposes on the sector
• expected loss of visibility for the ATO on some higher risk contraventions should the threshold be changed, or Test 7 removed all together
• potential impact upon the ATO’s assessment and treatment of risk and reporting to external stakeholders.

The ATO will continue to review the rate and risk information reported via Test 7 however for now, the current reporting parameters will not be changed. This action item is now closed.

Proposed ATO guidance on regulation 4.09A

The ATO has progressed draft web content and has distributed this content to members to gather further feedback.

A dedicated technical discussion will be held in early 2023 with members to further explore the technical aspects raised within the draft content and to resolve any outstanding concerns they may have before any content is progressed for publishing.

ATO

The ATO’s Self-Managed Superannuation Fund (SMSF) auditor program update included the following key points:

• Compliance cases completed this financial year have so far resulted in the referral of 13 auditors to Australian Securities and Investments Commission (ASIC).
• ACRs received for the 2022 financial year has increased slightly. The most common breaches reported are for loans, sole purpose, and separation of assets.
• The current year SMSF Auditor Number (SAN) misuse program of work commenced in October 2022. Client lists have been sent out to auditors to review and respond to the ATO. The lists included any audits reported to have taken place between 1 July 2021 and 30 June 2022.
• A joint media release with the Tax Practitioners Board was issued in October in relation to the recent termination of registration of 2 tax agents who have been involved in systemic SAN misuse.
• The auditor checklist and guidance material on market valuations and SuperStream has recently been updated following stakeholder group feedback.

In relation to the upcoming work program the ATO noted:

• Targeted reviews of auditors who may be involved with in-house audits and reciprocal audit arrangements have recently commenced.
• There is also a specific focus underway on tax agents and auditors who have outstanding personal SMSF lodgment obligations.
• Website material on crypto is being developed to support auditors who are now becoming more exposed to this asset class.
• The ATO website, including SMSF content will undergo a redesign over the next 6 months and stakeholders will see some changes in relation to how auditor content is presented.

Key observations and feedback noted by members in open discussion included:

• The change to auditor independence requirements, per APES 110 Code of Ethics for Professional Accountants (including Independence Standards) has had a positive shift in terms of SMSF compliance and appropriate audit behaviour.
• The ATO could use the data on reported contraventions, which have occurred post the change of an auditor to consider compliance strategies.
• There was an expectation that over time that ACRs should decrease in relation to the established relationships with the new auditor.
• The SuperStream reporting requirements may lead to an increase in contravention reporting. Stakeholders raised the concern that most contraventions cannot be rectified and that ATO correspondence received in response to the ACR (which directs the trustee/s to rectify) has the potential to cause confusion.
• Members also noted that a driver for some SuperStream issues may be participants who may not be familiar with SuperStream or do not use it often enough to build workable solutions.

Action item	SuperStream ACR Reporting
Due date	End of February 2023
Responsibility	ATO
Action item details	ATO to consider the current reporting expectations and whether further guidance for auditors would be appropriate in respect to how to best report SuperStream issues on an ACR

ASIC

The ASIC update focussed on:

• The Federal Court has recently set aside an Administrative Appeals Tribunal (AAT) decision to reject the ASIC disqualification of an auditor for auditing the fund of a relative. The Federal Court has referred the matter back to the AAT.
• Based on feedback on the ASIC class order [CO 12/1687] Competency standards for approved SMSF auditors, which is due to sunset in April 2023, it has been decided that ASIC will not seek to reinstate the order. The knowledge requirements in the order were borrowed from accounting bodies and are appropriately reflected in the auditing standards.
• A recent media release highlighted the significant proportion of SMSF auditors who are behind on their annual statement compliance obligations. The next step in the approach will be to issue show cause and intent to cancel correspondence for failure to comply with annual statement obligations.

Auditing and Assurance Standards Board

The Auditing and Assurance Standards Board (AUASB) discussed its 6 strategic priorities for the 2023 financial year:

• The International Auditing and Assurance Standards Board (IAASB) Agenda – This area is to be discussed at the upcoming December IAASB meeting.
• Audit quality – Continuing to work on the Australian (International Equivalent) Standard on Quality Management (ASQM) suite, including ASQM 1 Quality Management for Firms that Perform Audits or Reviews of Financial Reports and Other Financial Information, or Other Assurance or Related Services Engagements – which is required to be in place by firms from 15 December 2022. Review and remediation by the firms is likely to occur at the end of the first year of implementation. AUASB continues to work with the Financial Reporting Council and ASIC on audit quality matters and has recently issued a research report No 9 Perceptions of Audit Quality by Audit Committee Chairs in Australia.
• Technology – Several bulletins have been issued by the AUASB Technology PAG that may be useful (ASA 315 and general IT Controls, Evaluating the reliability of data obtained for use in audit technology tools and Integrity of Data obtained for the purpose of an audit of a Financial Report). The PAG will look at the need for new projects in 2023.
• Public Sector Auditors – A suite of Guidance Statements have been issued for this sector.
• Scalability – For sectors such as SMSF and Not-for-profit (NFP), the AUASB is looking at the broad issue of scalability of the standards for any sized entities and whether any further guidance is needed.
• Sustainability Standards on Assurance – This is a significant priority area of the AUASB. Work is progressing quickly on both the baseline climate reporting standards and the assurance standards internationally and the IAASB and AUASB are likely to see exposure drafts for both in Q1 2023 and Q3 2023 respectively.

Other points mentioned:

• Post implementations of ASAE 3100 – Based on feedback received from stakeholders during the Post-Implementation Review process the AUASB determined no changes to the standard are required at this time.
• Digital standards portal – Originally released on 1 June 2021 with some recent updates deployed which provide better search functionality by date.
• AUASB agenda consultation process – Undertaken in 2022 and continues to inform the AUASB of focus areas for 2023.
• ISA 500 Audit Evidence – The Exposure Draft has been issued in Australia and is available for comment until 31 March 2023. An educative webinar will also be released by the AUASB to assist auditors and in person roundtables will be held in February 2023.
• Review of Guidance Statement GS019 – For fundraising revenue for NFP entities for relevance and modernisation based on current practice.
• Review of Guidance Statement GS007 – For investment management services. The AUASB will look at this potential project further in 2023.
• IAASB Strategy 2023–27 includes work on:
  • ISA 500 – Sustainability assurance
  • ISA 570 – Going concern
  • ISA 240 – Fraud.
   

SMSF auditors survey

In October, the ATO conducted a survey which sought to gather information on communication preferences and the effectiveness of the current content and approaches. It was pleasing to see that:

• 86% of responders are aware of and have used ATO web content in guiding them on their obligations as auditors
• 83% of responders agreed that our guidance material strikes the right balance in terms of the extent of content and detail
• 77% of SMSF auditors are aware of, and have used, the newsletter – with 88% of those considering it of some or considerable value, rating it second on awareness and value to ato.gov.au content
• Direct email, 66% and the Tax Professional newsletter, 63% were also considered valuable forms of communication.

There was also a clear message from auditors that they value the information that they receive from their professional associations.

There were a few topics where auditors have advised us that they would like more information from us including:

• Valuations
• In-house assets and related party transactions
• SMSF property
• Non-arm's length income
• Auditor independence

The survey results provide strong affirmation of our existing approach to communication and content delivery. Going forward there will be a commitment to:

• continue with our website content and website experience to deliver the information auditors need to meet their compliance obligations and service their clients
• maintain regular updates to SMSF auditors through the dedicated section in the SMSF newsletter
• focus on the topics that auditors have told us they would like to hear more about
• continue to build relationships with our key associations to ensure they are supportive of our messaging and providing clear and concise information for SMSF auditors
• continue monitoring the click through rates of our articles in SMSF news to understand the ongoing effectiveness of our communication strategies.

Other business

Members raised the issue of the appropriate treatment of diamonds as a collectable under s62A of the SIS Act. The ATO is considering the technical aspects of this issue. Auditors need to consider the application of regulation 13.18AA of the Superannuation Industry (Supervision) Regulations 1994 to these types of assets if they meet the s62A definition.

Members also asked how the SMSF lodgment statistics are tracking and if there is any evidence that lodgments will be considerably behind coming into the new year.

The ATO advised that it has observed a 6% decrease in the outstanding lodgments from last month, but overall, the number of late lodgments is still over 70,000 outstanding which is a 16% increase from the same period last year.

The ATO thanked members for their participation in the stakeholder group throughout 2022, acknowledging that the SMSF landscape is ever changing and that the groups contribution assists in targeting our communication and guidance in the sector.

Key topics discussed at the SMSF Auditors Professional Association Stakeholder Group meeting 5 December 2022.