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Compliance & Regulation

Problems with low-cost audits pinpointed

The ATO has identified a number of issues associated with low-cost SMSF audits after carefully reviewing these services in the 2017 financial year.

A key concern the regulator uncovered during its examination into low-cost audits was the fact many practitioners providing these services were not conducting adequate audits in compliance with the auditing standards.

“In some cases, auditors in fact had no written audit plan, compliance checklist or trustee representation letters,” ATO SMSF segment assistant commissioner Kasey Macfarlane said during an interview with the SMSF Association.

“In other cases, the auditor had breached independence requirements because they prepared financial accounts for some of their SMSF audit clients.”
According to Macfarlane, additional low-cost audit problems discovered included the failure to verify fund assets and the non-verification of the terms and structures of limited recourse borrowing arrangements.

“In another case, there was an auditor who failed to retain documentation in accordance with the auditing standards and had failed to identify and report two material real contraventions that the ATO had required,” she revealed.

“That auditor also had not completed their required continuing professional development hours.”

She said more cases are in the process of being reviewed and referrals to the Australian Securities and Investments Commission were likely.

The assistant commissioner was keen to point out there were some practitioners who were performing cheaper audits to a satisfactory standard and the impact of questionable low-cost SMSF audits on the sector was not alarming.

To that end, she said ATO records showed only 9 per cent of SMSFs used low-cost audits, representing only 7 per cent of assets held in SMSFs.

She noted low-cost auditors accounted for 8 per cent of active SMSF auditors out of a total population of around 6500.

“I suppose if there was a message overall, it’s like anything, if you receive a quote for a service that is significantly lower than others providing that same service, then you do just have to ask yourself why that might be,” she said.

The ATO activity was based upon practitioners who performed SMSF audits at a cost of $400 or less.

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