Newsletter No. 1, January 2013

 SMSF Auditor Registration

During the Christmas break I caught up with a good friend of mine who is a self managed superannuation fund (SMSF) auditor.  I asked Anthony how things are in the SMSF world.  Anthony indicated to me, although he is very busy and has no shortage of clients, there is a lot of SMSF trustees that don’t value the work of SMSF auditors as most feel the work of an auditor is simply a “tick and flick” role where all the auditor does is check the work already performed by their accountant.

After hearing this, I thought it best that I explain the important role an SMSF auditor plays in the SMSF environment and how a bad auditor could cost you your life savings.

An SMSF auditor is responsible for performing financial and compliance audits of an SMSF and reporting any contraventions of the superannuation law by the SMSF to the Australian Taxation Office (ATO).

Although your accountant is responsible for putting together your financial documents based on transactions made by your SMSF throughout the financial year, the auditor’s role is to check these documents as well as other source documents to ensure they reflect the true financial position of your SMSF and that your SMSF complies with all provisions of the taxation and superannuation law.

The auditor must check that all assets of the SMSF are correctly registered in the name of the SMSF; any borrowing entered into by the SMSF is structured correctly; that the SMSF has not lent money to a related entity greater than the allowable five per cent limit; that the fund has adhered to contribution and payment standards. If the SMSF has contravened any provisions of the superannuation law then the trustees of the SMSF is informed of them and the contraventions are reported to the ATO.

Anthony informed me that some trustees don’t like their SMSF being reported to the ATO and looked upon such actions as being disloyal. They do not realise that by not reporting a contravention an auditor could get into trouble with the ATO if their working papers were audited.  It could be perceived by the ATO as either the auditor not understanding the superannuation law and therefore not recognising a contravention or not doing a proper audit by not identifying a contravention.

Anthony said he normally takes about 3 to 4 hours to do one audit and he charges around $450 – $550 depending on the complexity of the SMSF audited.  Anthony finds it hard to believe that some auditors can charge under $300 to perform a thorough audit.

In my opinion, an auditor’s role is an extremely important one as the ATO relies on auditors to be their eyes and ears.  There are over 450,000 SMSFs in Australia and it would be impossible for the ATO to audit every single SMSF to ensure they comply with the tax and superannuation law. Therefore, the ATO relies on auditors to act as gatekeepers in providing independent opinions on SMSFs financial reports and compliance with legislation requirements.

The good news for SMSFs is that there is now a requirement for all SMSF auditors to be registered with the Australian Securities and Investments Commission (ASIC) and meet the minimum competency requirement in order to conduct SMSF audits from 1 July 2013.   As part of the Stronger Super reforms, a new registration system has been introduced which takes effect from 31 January 2013.  The registration process will ensure that SMSF auditors possess the necessary skills and knowledge to perform their role as SMSF auditors.  ASIC has developed knowledge and competency requirements that requires SMSF auditors to:

  • hold a tertiary accounting qualification that includes an audit component or have successfully completed study in audit as part of a professional accounting body program;
  • have 300 hours of SMSF audit experience in the 3 years prior to registration (subject to transitional arrangements);
  • pass a competency exam (subject to transitional arrangements);
  • satisfy a fit and proper test;
  • hold professional indemnity insurance; and
  • be an Australian resident

From 1 July 2013, SMSF trustees can only appoint auditors that are registered with ASIC to perform audits of their SMSFs.  This also applies to audits for past financial years if the audits are conducted after 30 June 2013.

SMSF auditors that would like to know more about the new registration process can visit ASIC at www.asic.gov.au.  ASIC issued Regulation Guide 243 that explains how to apply for registration; the types of registers of SMSF auditors maintained by ASIC; and the transitional arrangements for the registration of existing approved auditors of SMSF.  Applications for registration can be made from 31 January 2013.

Transitional arrangements available to existing SMSF auditors

Transitional arrangements have been developed for existing SMSF auditors to give recognition to highly experienced, competent auditors.  The arrangements are as follows:

  • An existing SMSF auditor who has signed off at least one SMSF audit within the 12 month period before applying for registration, will not need to meet the required minimum hours of practical experience.  However, they must pass the competency examination before 1 July 2014.
  • An existing SMSF auditor who has signed off 20 or more audits within the 12 month period before applying for registration, will not need to meet the required minimum hours of practical experience and would not be required to sit a competency exam.
  • An existing SMSF auditor that is a registered company auditor at the time of applying, will not need to meet the required minimum hours of practical experience and would not be required to sit a competency exam.

All of the above requirements are only available if an existing SMSF auditor submits an application for registration prior to 1 July 2013.  If an existing SMSF auditor does not register with ASIC by this date, then they will only be able to continue to audit SMSFs up to 30 June 2013.  If an auditor has lodged an application for registration but it has not been assessed by ASIC by 30 June 2013, then they will not be able to audit SMSFs until they have been notified by ASIC that they are a registered approved SMSF auditor.  Therefore, it is most important to register by 30 April 2013 to ensure the application can be processed by 30 June 2013. 

Registration

To register with ASIC, an SMSF auditor will need to complete an online application form, lodge it with ASIC and pay the prescribed registration fee by 30 April 2013 to ensure that the application can be processed by 1 July 2013.    If an auditor has difficulties with the online application, they can contact ASIC on 1300 300 630 for assistance.  Once registered, ASIC will issue the auditor with an SMSF auditor number (SAN).  This number will be required to be recorded on audit reports provided to trustees of SMSFs as well as other required reports to ASIC and the ATO.   Auditors that are required to sit the competency exam will be able to do so from 1 July 2013 and will have until 30 June 2014 to complete the exam and become fully registered. Failure to pass the competency examination by 1 July 2014 will result in the cancellation of an SMSF registration.  An auditor can only make two attempts to pass the competency examination within a 12 month period.

The ATO will continue to play a role in monitoring the performance of SMSF auditors and checking compliance with relevant standards.  The ATO may refer matters to ASIC for consideration and possible enforcement actions on auditors – such as suspension, cancellation or disqualification.  The on-line registrations, suspensions and disqualifications will be managed by ASIC and details will be available to the public.