Frequently asked questions for SMSF auditors

All SMSFs must be audited annually by an approved SMSF auditor.

An approved SMSF auditor is a person registered with ASIC under section 128B of the SIS Act. To qualify for registration auditors must:

• 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
• meet a fit and proper test
• meet minimum experience requirements
• hold professional indemnity insurance
• pass a competency exam
• be an Australian resident.

To be eligible to audit a SMSF, a member must also:  

• hold a practising certificate
• undertake relevant continuing professional development
• ensure that those who undertake work under their behalf have appropriate knowledge and experience, and are properly supervised.

Members must comply with the relevant ethical requirements pertaining to audits, including independence requirements

Members must exercise their professional judgement as to whether they are independent, based on the particular circumstances of the engagement. To determine whether an auditor is independent requires the auditor to apply the conceptual framework approach, as described in APES 110, sections 100.6-100.11 and 290.4-290.12. Determining whether the auditor is independent in relation to the audit of a SMSF client requires the auditor to exercise professional judgement based on the particular circumstances with which the auditor is faced. The auditor needs to identify and evaluate the threats to independence and when necessary, apply safeguards to eliminate or reduce the threats to an acceptable level. Amongst other things, the Code provides the following guidance on what is an acceptable level:

"The Member shall exercise professional judgement and take into account whether a reasonable and informed third party, weighing all the specific facts and circumstances available to the Member at the time, would be likely to conclude that the threats would be eliminated or reduced to an Acceptable Level by the application of the safeguards, such that compliance with the fundamental principles is not compromised." Refer paragraph 100.7.

To assist auditors in determining independence, other guidance is provided in the form of the Independence Guide (especially section 9 – Special consideration: self-managed superannuation funds) and GS 009 Auditing Self-Managed Superannuation Funds, Appendix 5 (GS 009). 

Members should carefully consider the following points when determining independence. If you need to stop and consider whether or not you are independent, the chances are that threats to independence do exist and you need to determine the significance of threats identified and apply safeguards to eliminate or reduce the threats to an acceptable level. Third parties will also find it difficult to adjudge that you are not independent if you have:

• appropriately applied the conceptual framework approach
• appropriately exercised professional judgement
• clearly documented the process and conclusions in determining independence. 

The ATO does not have its own independence rules and requirements in relation to audits of SMSFs. The independence requirements applying to audits of SMSFs are those outlined in APES 110.  

Utilising a conceptual framework approach (as described in APES 110, Sections 100.6-100.11 and 290.4-290.12) in determining independence requires the auditor to exercise professional judgement based on the particular circumstances with which the auditor is faced. The auditor is in the best position to identify and evaluate the threats to independence and when necessary, apply safeguards to eliminate or reduce the threats to an acceptable level. CPA Australia staff are unable to be acquainted with all the circumstances faced by the auditor and therefore cannot provide a definitive response to the member. CPA Australia staff can, however, direct members to appropriate references for guidance.

Members cannot audit their own SMSFs.

This is a clear breach of ethical requirements relating to independence by which members of CPA Australia are bound, by reference to the Code of Ethics for Professional Accountants (APES 110). Independence "self-interest" threats exist and no safeguards can be implemented to reduce the threats to an acceptable level.

The auditor will need to exercise professional judgement to determine whether or not acting as a tax agent and the auditor amounts to non-compliance with the independence requirements by which members of CPA Australia are bound (refer APES 110).

The Independence Guide notes that preparing a tax return may give rise to both "self-review" (reviewing your own work when conducting the audit and where figures based on the tax return are included in the financial report) and "advocacy" (for example, making decisions in relation to particular tax treatments) threats. The auditor will need to determine and assess whether safeguards exist to eliminate or reduce the threats to an acceptable level.

APES 110, Sections 290.178-290.191, sets out the specific independence requirements when considering provision of taxation services.

Being involved in the preparation of the Client's accounts clearly creates "self-review" threats to independence.

Typically, it would be very difficult to implement safeguards which would eliminate or reduce these threats to an acceptable level. However, both APES 110 and the Independence Guide anticipate situations where some level of involvement in the preparation of accounts may be permitted. Members should refer to APES 110, Sections 290.1164-290.171, and the Independence Guide, section 9. The former notes that members preparing the accounts should not be making any managerial decisions on the part of the Client. The latter provides an example of the application of the conceptual framework when preparing accounts for a SMSF audit client. Further guidance on determining independence is provided in GS 009, Appendix 5.

Members must appropriately document audits in accordance with auditing standards.

ASA 230 Audit Documentation, GS 009, paragraphs 100 to 111, provide guidance on audit documentation. However, the last paragraph notes that it is "neither necessary nor practicable to document every matter the auditor considers during the audit". As a minimum documentation includes an engagement letter, a management representation letter, appropriate working papers and the audit report. It is recommended that members document the process undertaken in determining how they are independent, especially when this decision is not "clear-cut".

Members should also refer to Small Entities Audit Manual (SEAM), which includes examples of a number of important documents, including an engagement letter, a management representation letter and a sample audit plan.

The auditor of a SMSF should be alert to any contraventions of the SIS legislation and SIS regulations which require reporting to the ATO.

The auditor is obliged to complete such reporting using an auditor/actuary contravention report (ACR). The ATO provides explicit instructions on the completion of such reports, while guidance is provided throughout various sections of GS 009.

The SMSF auditor also considers whether any contraventions identified impact on their audit opinions on the SMSF’s financial statements or compliance.

CPA Australia competency requirements require members who audit SMSFs to hold a Public Practice Certificate (PPC).

Furthermore, members who audit SMSFs must also have continuing professional indemnity cover, undertake continuing professional development, and ensure that those who undertake work on their behalf have appropriate knowledge and experience, and are properly supervised in the conduct of the audit. Find out more.

CPA Australia competency requirements require members who audit SMSFs to have continuing professional indemnity cover for a minimum of $2 million.

Furthermore, members who audit SMSFs must hold a Public Practice Certificate, undertake continuing professional development, and ensure that those who undertake work on their behalf have appropriate knowledge and experience, and are properly supervised in the conduct of the audit. Find out more

When conducting an audit of a SMSF, members have a professional obligation to comply with the auditing and assurance standards issued by the AUASB (refer APES 210 Conformity with Auditing and Assurance Standards).

GS 009 provides detailed guidance on the application of auditing standards for the financial statement audit component, and assurance standards for the compliance audit component. This guidance statement also includes a range of material to assist the auditor in completing the audit, for example:

• a summary of criteria for the compliance audit

• examples of audit procedures for collectibles

• a SMSF trust deed audit planning checklist

• illustrative financial audit procedures.

Furthermore, to assist members in the conduct of audits of SMSFs, CPA Australia has prepared sample audit programs for the conduct of audits. These can be found in the Small Entities Audit Manual (SEAM) and include checklists which members can download and use in the completion of their audits. CPA Australia members can access SEAM for free; non-members need to purchase it.

Members are not obliged to use the checklists provided.

However, members conducting audits of SMSFs must appropriately document the work they have undertaken, to ensure that CPA Australia's quality reviewers and the ATO can satisfy themselves that there is sufficient audit evidence to support the findings of the audit.

Use of the checklists provided in SEAM and GS 009 certainly provides a good foundation for auditors to provide the required level of documentation.

The "rules" on auditing SMSFs are ostensibly set by the ATO and ASIC.

However, in prescribing arrangements the regulators requires that auditors comply with:

• relevant auditing and assurance standards issued by the AUASB 

• independence requirements outlined in APES 110 Code of Ethics for Professional Accountants.

• ASIC Competency Standards contained in Class Order CO 12/1687 Competency standards for approved SMSF auditors.

Furthermore, to ensure that the highest quality and ethical services are provided by its members, CPA Australia (in conjunction with the other professional accounting bodies in Australia) has issued a competency standard with which auditors must comply.

Auditing of SMSFs is a very specialised professional field and the compliance requirements change periodically. Recently, the auditing environment has changed dramatically and is continuing to evolve. For example, in 2006 we saw the introduction of a new suite of auditing standards, which were then substantially revised and redrafted in 2009 and in 2015 new auditor reporting requirements were introduced. Auditing today is very different from auditing some ten, twenty or more years ago.

The registration requirements are set out in ASIC Regulatory Guide RG 243.

According to RG 243 Registration of self-managed superannuation fund auditors, to qualify for registration auditors must:

• 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

• meet a fit and proper test

• hold professional indemnity insurance

• pass a competency exam

• have 300 hours of SMSF audit experience in the three years prior to registration.

The professional accounting bodies, including CPA Australia, also have competency requirements with which members who audit SMSFs must comply. Members auditing SMSFs must:

• hold a practicing certificate issued by the professional accounting body of which they are a member (CPA Australia, Chartered Accountants Australia and New Zealand or the Institute of Public Accountants) 
• have continuing professional indemnity insurance cover 
• undertake continuing professional development
• ensure that those who undertake work on their behalf have appropriate knowledge and experience, and are properly supervised in the conduct of the audit.

In order to address these areas adequately, members must be familiar with the:

• Superannuation Industry (Supervision) Act (SISA) and Superannuation Industry (Supervision) Regulations (SISR)
• AUASB Standards
• APES 110 Code of Ethics for Professional Accountants and relevant standards issued by the APESB.

Members are required to complete a course in the audit of SMSFs prior to commencing in the area of SMSF audit.

Members need to complete at least 30 hours of relevant continuing professional development activity in each rolling three year period.

The professional development activity must comprise the following as a minimum for each category, with the balance made up from any of these categories as necessary:

• Eight hours of superannuation or training 

• Eight hours of financial or compliance audit training

• Four hours of financial accounting training.

Continuing professional development is a membership requirement for all members. However, auditing of SMSFs is a very specialised professional field with compliance requirements which change periodically and the auditing environment has changed dramatically in recent times and continues to evolve. Furthermore, the superannuation and taxation landscape is Australia is constantly changing.

As a professional organisation it is imperative that CPA Australia insists that its members keep abreast of the latest developments in critical areas where professional services are being provided. To ensure that members provide the highest quality and ethical services, they must commit to continuing professional development in this very specialised field.