Gone are the days when a SMSF audit might have just been an exercise in compliance.
The independence of self-managed superannuation fund (SMSF) auditors has become a top priority for regulators such as the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO).
Given a dramatically changed regulatory environment, it has also become a focus for auditors themselves and should be a central consideration for SMSF trustees, members and their advisers.
The strong focus on auditor independence by Australian regulators and lawmakers was demonstrated in recent rounds of change to SMSF auditor regulation, with the standard of auditor independence set out in Australian Professional and Ethical Standard (APES) 110 Code of Ethics for Professional Accountants now explicitly mandated.
The ATO and CPA Australia’s Quality Review Program (QRP) has repeatedly identified SMSF auditor independence as an area requiring improvement.
In 2013, the QRP ranked breaches of SMSF auditor independence requirements as the second most frequent audit-related breach of a regulation, professional standard or legislative requirement.
The ATO’s SMSF independent auditor’s report now includes “a specific commitment that the auditor has complied with auditor independence requirements prescribed by the Superannuation Industry (Supervision) Regulations 1994 (SISR)”.
On its website, the ATO also makes reference to the Independence Guide jointly issued by CPA Australia and other major accounting bodies, which now has a dedicated section on SMSF auditor independence.
"Dedicated SMSF audit professionals are coming to the fore in an environment that recognises their value."
The rigour of the renewed framework, which includes registration with ASIC, has seen SMSF auditor numbers decline from around 11,000 to just over 7000. Throughout the reforms’ development and implementation, professionals have clearly seen that auditing SMSFs is a specialised space requiring absolute commitment. There has been a noticeable effort by SMSF auditors to raise the bar, the result of which is that dedicated professionals are coming to the fore in an environment that recognises their value.
While the onus of implementing reform has rightly been on SMSF auditors, it is timely for SMSF trustees, members and advisers to carefully consider the role and quality of their audit.
A common mistake is to view it as an exercise in compliance. In the current environment, that could not be further from the truth. A quality, independent SMSF audit can provide a sounding board to identify potentially adverse issues before they become critical.
Those running SMSFs should be well aware of the substantial penalties and tax consequences to which they are exposed for even minor breaches of the law. In such an environment, prevention and early recognition of problems is essential and a quality, independent audit can be invaluable.
If there ever was a time for “just getting it done”, it’s now over. SMSF auditor independence has become everyone’s business. It is crucial that auditors understand the ins and outs of APES 110, and how they apply in common SMSF scenarios that can threaten independence. Just as importantly, trustees, members and advisers need to be aware of what auditor independence means for them, and the questions they need to be asking.