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Trouble for SMSF Trustees

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Recently an article appeared in SMSF Adviser (by Miranda Brownlee on 12 May 2015) titled “ATO honing in on misuse of auditor numbers”. In that article the ATO Director of Superannuation – Mr Howard Dickinson said:

“There has been a suspicious amount of activity where individuals have claimed an auditor has conducted an audit when they in fact have not….. In all of those cases (investigated by the ATO) …it was the tax agent who appears to have misled the Trustee(s) and ourselves (the ATO)…  When we …confirm that, we’re going to be very serious about the action we take”.

These statements by Mr Howard Dickson place SMSF Trustee(s) in an extremely difficult position, as it is the responsibility of SMSF Trustee(s) to appoint an independent and appropriately qualified SMSF auditor. Failure to do so could see SMSF Trustee(s) hit with severe penalties for the rogue actions of some Tax Agents.

Questions for SMSF Trustee(s) are:

  • How do they confirm that they have had a proper audit performed by an appropriately registered SMSF Auditor?
  • How do they know that their tax agent is doing the right thing?

The following list may be useful to reassure Trustees and allow firms to distinguish themselves from the “bad apples” out there.

Step 1 – Know your responsibilities as an SMSF Trustee.

When anyone becomes a trustee of a complying SMSF, they are required to sign an ATO Trustee(s) Declaration. This compulsory document points out that each SMSF Trustee is AWARE of their ROLE and DUTIES to maintain a complying SMSF.

Given the high responsibilities that come with running a SMSF, it is always timely for SMSF Trustees to refresh their knowledge.

See Running a Self-Managed Super Fund.

Step 2 – Reassure yourself about your accountant.

They should be competent and undertaking the services for which they bill.  For most clients, given their dealings with their accountants over the years, a degree of trust has built.  Sometimes referral to a firm has come from a colleague, friend or relation and can be expected to be relied upon.  If the firm is new to you, have you visited their premises, reviewed their website, checked them on Google?  A professional firm will source competent qualified SMSF Auditors.

Step 3 – Reassure yourself about your SMSF Auditor.

Remember that the audit process should be independent and carried out by a Registered SMSF Auditor.

When SMSF trustees appoint an auditor ….it’s very much like getting a doctor’s opinion on your health. There’s no point having a doctor tell you ONLY what you want to hear, as serious underlying issues can be deliberately overlooked. It may feel good (and cheap) in the short-term, but actually to the long term detriment of the Trustees and Members.

True independence in the audit process is the best way of protecting members’ retirement savings, as it provides an honest and objective opinion of a self- managed super fund’s health.

Sometimes the SMSF Auditor is the same firm as that providing the administration (preparation of financial statements and tax return) for your SMSF.  This is currently legitimate in larger firms with separate SMSF administration and audit sections.

The SMSF Trustees should ensure that the SMSF Auditor is appropriately registered and approved through ASIC. Other things trustees can check is

  1. Have they appointed a designated auditor in writing?
  2. Have they signed an engagement letter with that auditor?
  3. Have they signed a representation letter (addressed to that auditor)

Step 4 – Carefully read your SMSF Financial Statements.

Confirm the asset balances shown correctly represent the assets you know the SMSF holds.  Review the income, does it seem appropriate to the assets held?  The Financial Statements should cover a number of pages and include a Balance Sheet and Profit and Loss, a Members Statement, Notes to Accounts, etc.  This is what the Auditor will review and verify.

Step 5 – Review your SMSF Tax Return. 

Read this and ensure the SMSF Auditor’s name and number is listed on it and match the SMSF Auditor that you have engaged.  Do you have a copy of the Auditor’s Report?

If you meet with your accountant, they will often walk you through the documents, explain what is included and answer any questions you have.  Trustees have an obligation to ensure their SMSF has appropriate (correct) financial statements and is properly audited.

Should you need more information, please call us on 1300 551 261

© David Saul – Saul SMSF

David was among the first professionals to be accredited through SPAA as an SMSF Specialist Advisor™. He is also a Chartered Accountant and holds a Bachelor of Financial Administration from the University of New England, Armidale NSW.