Audit & Compliance Presentation

1. AUDIT AND
COMPLIANCE
Jo Heighway
ENGAGE Super Audits

2. SMSF Auditor Registration
 New Legislation for SMSF Auditors
 Exposure Draft legislation and Explanatory Memorandum
is available on Treasury’s Stronger Super website (closed
for public comment)
 SMSF auditors will be required to be registered with ASIC
from 1 July 2013 to conduct SMSF audits after that date
 The new regime applies to ALL SMSF auditors
 Short window of opportunity to take advantage of the
proposed transitional arrangements

3. SMSF Auditor Registration
 Criteria for registration as a new SMSF auditor
 Hold tertiary qualifications that either includes an audit
component, or complete an audit study program via a
professional accounting body
 Meet the fit and proper person test
 Hold Professional Indemnity Insurance
 Have 300 hours of SMSF audit experience in the three
years prior to registration
 Pass a competency exam

4. SMSF Auditor Registration
 Transitional arrangements for existing SMSF auditors
 Competency Exam – SMSF Auditors who sign off 20 or
more SMSF audits in the 12mth period prior to applying for
registration will not be required to sit a competency exam
to become registered as an SMSF auditor
 SMSF Audit Experience - SMSF Auditors who have signed
off an SMSF audit within a 12 month period will be exempt
from the hours based experience requirement when
registering
The latest ATO statistics indicate that more than 60% of
current approved auditors audit less than 20 SMSF audits

5. SMSF Auditor Registration
 Cost of registration
 Initial registration $100
 Competency test $100
 Ongoing annual renewal $ 50
 Other Costs?

6. SMSF Auditor Registration
 Ongoing Requirements
 ASIC will be the new registration body for approved SMSF
auditors
 ATO will oversee audit compliance with the relevant
standards and refer non-compliant auditors to ASIC
 120 hours of relevant Continuing Professional
Development (CPD) training over three years
 Adhere to APES 110 – Code of Ethics for professional
accountants as part of their ongoing registration obligations
 Provide an annual statement to ASIC in the approved form
within 30 days of the end of every 12mth period following
successful registration
 ASIC will maintain a register of SMSF Approved Auditors
and also a register of Disqualified SMSF Auditors.

7. SMSF Auditor Registration
 Further detail required
 Absence of draft regulations
 Transitional arrangements are not covered in the draft
legislation and EM
 The requirement for existing auditors to register prior to 1
July 2013 to utilise transitional arrangements
 Requirement for a tertiary accounting qualification
 Clarification of minimum PI cover requirements
 A register of ceased SMSF auditors?
 Fees imposed on anyone accessing the register of
approved and deregistered SMSF auditors
 Amendments to Section 131A The Regulator may Refer
Matters to a Professional Association

8. Auditor Independence
 APES 110 and the new regime
 SMSF Auditor independence is a fundamental and
significant part of the new regime
 The Federal government announced in Sep-11 that under
the new regime, all SMSF auditors must comply with the
standard of independence contained in APES110 – Code
of Ethics for Professional Accountants, section 290.
 From 1 January 2013, auditors will need to include a
statement in their audit report as to the extent of their
compliance with the auditor independence requirements

9. Auditor Independence
 Independence Guidelines
 “Independence guide: Interpretations in a co-regulatory
environment”
 Independence is defined as both:
 Independence of mind, AND
 Independence of appearance
 Threats to independence:
 Self interest
 Self review
 Advocacy
 Familiarity
 Intimidation

10. Auditor Independence
 Specific Examples
 Independence will not be achieved in the following
situations:
 The financial statements of the SMSF are prepared by
the SMSF auditor eg sole practitioner or no segregation
of the accounting and audit roles
 Auditing a partner’s personal SMSF
 Auditing an SMSF where you or a family member are a
member/Trustee
 Auditing an SMSF where financial planning advice has
been provided by your firm
 Swapping SMSF audits between firms where threats to
independence have not been mitigated

11. Auditor Independence
 Specific Examples
 Independence will be achieved where:
 The accounting and audit roles are segregated to be
performed by different staff AND partners, where
financial planning advice has not been provided by the
firm and all other threats to actual and perceived
independence have been mitigated
 The SMSF audit function is outsourced under an
arrangement that does not impact on actual or perceived
independence

12. Auditor Independence
 Other factors to consider
 Your auditor plays a vital role in your quality control
 Practice profitability
 Risk reduction for yourself, your firm and your client
 Reputation & Branding
 Skills shortages or over-reliance on individuals
 Expanding your knowledge pool
 Turnaround
 Client relationships and retention
 Stress/health impact of stress in partnership relationships
 Addressing perceived independence from the client’s
perspective
 Access to ongoing high level technical support

13. Hot Audit Issues for 2012/13
 The Auditor’s Top 5 Hot Audit Issues
 In-specie off-market transfers of assets into super
 Limited Recourse Borrowing Arrangements (LRBAs)
 Contribution Caps
 Minimum/Maximum Pension standards
 Related party transactions

14. Hot Audit Issues for 2012/13
 The ATO’s Hit List
 The Top 200 richest SMSFs
 New SMSFs
 Excess contributions tax (ECT)
 Non arms length income
 Exempt current pension income
 Losses incurred by an SMSF
 Benefit reporting
 Lodgement
 Approved Auditors

15. The Auditor’s Role in Rectification
 The Strategic Auditor
 The importance of rectification
 Consultation during the audit process
 Accurate & complete reporting in the ACR
 Rectification support to Trustees via audit management
letters
 Flag potential future compliance issues for Trustees
attention (proactive compliance support)
 Specialist expertise to recommend the best course of
action to rectify complex breaches
 Trustee education

16. Impact of Technology on
SMSF Auditors
 The growth of online SMSF audit specialists providing
greater choice and increased accessibility
 Paperless audit office
 Working with SMSF administration technology
 Latest developments:
 Audits on Demand
 Strategic Audit
 Enhanced audit methodologies
 Capturing data from the source.
 Relationships remain crucial
 The Future – real time auditing

17. © Jo Heighway, ENGAGE Super Audits 2012
Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax
Institute did not review the contents of this presentation and does not have any view as to its accuracy. The material and
opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries
in making any decisions concerning their own interests.