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SMSF audits and auditor independence

Jan 24, 2021, 20:50 PM

By Graeme Colley

Graeme Colley SuperConcepts SMSF expert


If you think the superannuation and SMSF rules are changing at a pace that makes your head spin then spare a thought for SMSF auditors who are being thrown around in a washing machine of reform. Maybe you don’t have a great deal of sympathy for auditors when they are closely reviewing your SMSF. But they do play an essential role to make sure your SMSF complies with the superannuation legislation and may even help ensure it doesn’t end up paying unnecessary tax. So they do have a valid role to play.

If you have a keen interest in current superannuation issues recent articles will give a good idea of what’s going on with SMSF audits and auditors. These range from the changes to legal requirements, licensing and compliance issues as well as auditor independence. And don’t forget, the government still has to make a decision about the proposal to audit SMSFs every three years if they are in the ATO’s good book.

Why is an audit of a superannuation fund important? Many years ago and prior to the commencement of the SIS legislation¹, the ATO² put in place a requirement that superannuation funds should be independently audited because of the purpose for which tax concessions were granted. This original idea has continued and been developed significantly so that an auditor’s role for all superannuation funds now forms an integral part of the legislation and requires SMSF auditors to be registered with ASIC.

If you are a trustee of your SMSF or a director of the fund’s corporate trustee the SIS legislation requires you to appoint an auditor to report on the fund’s operations for the financial year. The appointment must be made 45 days prior to the fund lodging its annual return. Any request for information by the auditor is required to be provided within 14 days. Trustees that don’t comply with these requirements can be penalised.

It may sound obvious but the audit report must relate to the fund accounts for the tax year and the auditor is required to provide a statement that they comply with the auditor independence requirements published in APES (Australian Professional and Ethical Standard)³. SMSF auditors must be registered, undertake CPD, have professional indemnity insurance and comply with the auditor independence requirements published in the standard.

The independence guide has been effective since 1 January 2020 and is mandatory for all audits in Australia. It requires firms to comply with the new code for all SMSF audits completed from 1 July 2021 no matter which financial year is being audited. Auditors failing to meet these requirements will be referred by the ATO to ASIC for compliance action.

To be considered an independent auditor under the professional standard, independence is considered to be a situation where the auditor is not compromised in using their professional judgement. Also, it requires them act with integrity, objectivity and maintain a degree of professional scepticism when conducting the audit. In addition the auditor must not place themselves in a position which gives the appearance or impression that a conflict may exist which compromises their professional judgement. In other words, when undertaking the audit, the auditor must not be compromised in any way and they have avoided situations where a conflict may appear to exist.

The ATO⁴, as the regulator of SMSFs, is currently publishing articles on how they see the new independence standards applying to SMSF audits which are undertaken ‘in-house’ by accounting firms. In-house audits include situations where the audit, accounting and compliance functions for the SMSF are undertaken by the same firm. The ATO says that the changes to the standards apply where a firm has its accounting and audit divisions reporting to different partners.

According to the ATO, in-house audits may meet the independence requirements only in very limited circumstances. Before the independence standards can be met there are three hurdles that need to be overcome before in-house audits are acceptable. These relate to firms undertaking certain management responsibilities for an audit client and expressing certain opinions on fund accounts apart from providing routine services.

What does this change mean for trustees and the audit of their SMSF? For many firms a re-evaluation of whether audit, accounting and bookkeeping services can continue to be provided. A firm that is not able to meet the independence requirements may need to reorganise the services they provide or outsource some functions so the changes can be satisfied.

So if the firm that audits the SMSF changes sometime this year don’t be surprised it may be that they are sorting out some of the in-house issues with independence when undertaking an SMSF audit and the services they provide. If you are a client of SuperConcepts you can be confident that the auditor panel selected meets all of the independence and professional standards required by the superannuation legislation. 


1 Superannuation Industry (Supervision) Act and Regulations
2 IT 2067 (Withdrawn) | Legal database (ato.gov.au
3 https://apesb.org.au/standards-guidance/apes-110-code-of-ethics/
4 https://www.ato.gov.au/Super/Sup/Our-compliance-approach-to-the-new-Independence-Guide-and-in-house-SMSF-audits/