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Bullying and Intimidation by the ATO

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belle
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Bullying and Intimidation by the ATO

Post by belle » Tue Apr 04, 2017 10:27 am

The ATO and ASIC are going after SMSF auditors where the audits are carried out in house with Chinese walls.
There tactics are nothing short of disgraceful.
The accounting bodies are running for cover all of them.!!!
Does anyone know whether they are just attacking CPA's or are CA's also in the firing line.???
The reason I ask is the ATO goons involved, are all CA's employed by the ATO.
I spoke to the ATO and asked them what there doing about PWC , the response was a laugh , and they are too big for us.
The small practitioner is are an easy target.

ramson
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Re: Bullying and Intimidation by the ATO

Post by ramson » Wed Feb 28, 2018 5:45 pm

ATO and ASIC Both are Working fine. :)

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JWheldon
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Re: Bullying and Intimidation by the ATO

Post by JWheldon » Wed Feb 28, 2018 11:23 pm

Hello Belle,

The position of the ATO or ASIC with regards to the auditing of SMSF is correct. The ATO is concerned with the small firms, who not only prepare the accounts, but also have another partner undertake the audit within the same firm. The auditor is supposed to be independent and provide the confidence that the accounts prepared comply with the Superannuation Industry (Supervision) Act 1993 and SIS regulations. It has been a practice for many small firms for many years, to have an independent auditor to undertake the audit of the SMSF. The ATO has said, since it took over the control of the SMSF, that they would take a closer look at those small firms who not only prepared the accounts, but also complete the audits within the same firm or same offices. The ATO has seen, from many past audits, that compliance breaches are discovered upon their reviews, which the auditor has not reported when they have undertaken the audit.

PWC and the other large accounting firms, and even medium size firms, have always operated in a way that the audit departments are clearly separate from the business services departments and even the financial planners. The individuals in those departments are experienced and even specialise in the provision of those services, unlike small firms, which generally do not have the technical knowledge to undertake such services.

Would suggest that you read this article from intheblack below. It is also good business practice and confidence for the clients, that an independent auditor review the SMSF accounts. The independent auditor, who specializes in the area of SMSF audits, can not only provide advise to those small practices undertaking the preparation of the SMSF accounts, but also advise about issues that practitioner needs to be aware of. There are a lot of accountants out there that have a general understanding of the superannuation rules, but have a lot of compliance problems with regards to their clients SMSF. This is what the ATO is concerned with, as they are trying to reduce the non-compliant funds, correct those funds which are in breach of the rules and the funds where the members have limited understanding of their responsibilities to comply with the very complex superannuation rules.

Therefore, it would be suggest that you engage a independent auditor to undertake the audit of the SMSF.

6 warning signs the tax office uses when monitoring SMSF auditors - 15 Nov 2017 by Jan McCallum

https://www.intheblack.com/articles/201 ... f-auditors



The growth in self-managed superannuation funds (SMSFs) shows no signs of slowing, and as the number of funds approaches 600,000, regulators have had to prioritise and set criteria to monitor the sector.

In 2016-17, the Australian Taxation Office (ATO) conducted more than 160 reviews and sought information from another 50 auditors when it specifically had concerns about the auditor’s independence.

The ATO referred 22 auditors to the Australian Securities and Investments Commission (ASIC), which manages SMSF auditor registration and can disqualify or suspend an auditor’s registration.

Craig Blair, ATO director of superannuation, who is responsible for SMSF auditors, says that in 2017-18 this work will continue but the ATO will also be contacting auditors identified through risk profiling. They will be subject to targeted reviews.

The ATO has identified three red flags that could point to problems with auditor independence, as well as three red flags it uses to identify auditors at risk of poor audit quality.

Blair is keen to share insights with the profession so auditors can pre-empt the ATO’s concerns by modifying their practice to avoid attracting the regulator’s notice or be prepared to support their business model. The message is simple: check if your practice could raise red flags and, if so, proactively address any underlying independence or audit quality concerns.
Red flags indicating lack of independence
1. Auditor and tax agent are the same practitioner or firm

The ATO focused on this in 2016-17, particularly for sole practitioners where the principal or staff were providing accounting and tax services for a fund that they were also auditing.

It also saw instances where staff involved in accounting and audit services were reporting to one principal and the ATO did not accept the argument that there was segregation of duties.

CPA Australia’s policy adviser on audit and assurance, Claire Grayston, points out that regardless of whether a firm has separate staff providing accounting and audit services to SMSFs, “If they are overseen by the same principal there is a self-review threat to independence, which cannot be mitigated unless, at a minimum, a different principal takes on one of those services.”
2. Auditors audit their own fund

Instances of this breach have dropped from about 100 in 2014 to about 20 a year now, although Blair says it is concerning that it’s happening at all.

“The self-interest threat to independence is unavoidable in the circumstances of the auditor auditing their own fund,” says Grayston.
3. The auditor and tax agent/accountant are related

The ATO is also noting cases involving referrals from the auditors’ relatives, where the relative is doing the accounting work and the auditor audits the fund. Receiving such referrals from a relative creates a familiarity threat to independence and may also create a self-interest threat, if all the relative’s audits are referred to the same auditor.

Blair says the ATO will be targeting these relationships in 2017-18.

Professional Development: Audit of SMSFs - learning manual: this course is designed to help you understand the requirements surrounding the audit of SMSFs.
Red flags indicating poor audit quality
1. Low-cost audits

Blair says low-cost audits were a focus in 2016-17 due to industry feedback that low fees might equal low quality.

The ATO found “some level of deficiency” in the majority of cases it investigated. This work continues and cases have been referred to ASIC.

Problems included gaps in audit evidence needed to support the opinion, or contraventions that had been identified but not reported.

“We saw instances where there was no written audit plan, limited-to-no use of checklists, and perhaps a lack of key documentation like trustee representation letters,” says Blair.

Sometimes there was a failure to retain relevant information. Blair says the ATO investigator or another auditor should be able to pick up the file and see how the work was undertaken, including documentation to support significant judgements.

A key issue was failure to verify ownership of assets and limited recourse borrowing arrangements, where a trustee takes out a loan from a third party lender to purchase an asset. The asset must be held in a separate trust, and if the loan defaults, the lender only has recourse to the asset in the trust, not the other assets in the fund.

“Low cost does not necessarily result in low quality,” Grayston says. “Auditors may be able to offer a low cost audit through clever use of technology, off-shoring or efficient systems.”

A firm might be outsourcing but have strong controls in place, or it might have captured efficiency gains that allow it to lower costs. A fund may have very simple affairs, and auditors that seem to have low costs may use a sliding scale of fees that mean charges rise with the complexity of the work.

“The critical thing,” Grayston says, “is that SMSF auditors are prepared to justify to the ATO how their business model supports quality audits.”
2. High volume of audits

An auditor is not necessarily risky simply because they conduct a large number of audits, but the ATO wants to know that the firm has the resources necessary to conduct and review that volume of work because if there are issues with quality, this will impact a large number of SMSFs.

Blair says the ATO plans to engage with high-volume auditors in 2017-18 to gain some assurance around their processes and the quality of their work.
3. No auditor contravention reports submitted

The ATO receives 8000-9000 auditor contravention reports (ACRs) a year. It expects auditors to come across at least some contraventions every year although most will not require ATO action.

Grayston warns that if an auditor never submits an ACR, it rings alarm bells with the ATO as it throws into question the auditor’s level of competence in understanding the compliance requirements, or suggests they have not gathered adequate evidence of compliance.

“These red flags do not automatically mean that the auditor lacks independence or is delivering poor quality audits,” she says, “but we suggest all SMSF auditors consider whether they may fall into these categories and make sure it does not reflect an underlying problem with those audits, in advance of being targeted for an ATO review.”

CPA Australia Podcast: SMSF auditor compliance program findings for 2016-17. Listen now.

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nakedadmin
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Re: Bullying and Intimidation by the ATO

Post by nakedadmin » Thu Mar 01, 2018 12:10 am

There are some questions about how the ATO is operating on this.

Firstly ASIC is the regulator of SMSF auditors, but the ATO is auditing SMSF Auditors. How is it even legally possible for the ATO to request the audit work papers? I'm not saying it's not possible but just querying how is it possible because I am not sure it is. They just bully their way in.

It seems like the only reason they audit a super fund is as an excuse to audit the auditor.

Secondly ASIC is making determinations related to the registration of the SMSF auditor based on what the ATO tells them. The ATO does not pass on the correspondence they get from the Auditor. The information is one sided and for example in one case the ATO said: The auditor complies with most of the rules now. But the auditor complies with all the rules and the ATO could not point out a current non compliance.

ASIC is simply not interested in engaging in any investigation of their own and they don't even have a registered SMSF auditor on their review panel.

So JWheldon, yes you are right. But there is some serious bullying going on here.
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JWheldon
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Re: Bullying and Intimidation by the ATO

Post by JWheldon » Thu Mar 01, 2018 8:26 am

Belle stated "The ATO and ASIC are going after SMSF auditors where the audits are carried out in house with Chinese walls"

The ATO has enormous scope under the tax law to request documents, which has been always been challenged in many situations. Yet they can request workpapers etc, if they really want to. There are some arguments relating to privilege of certain documents, which should not be released to the ATO.
The important thing is that they do have the power to request or obtain documents in an audit situation.

ASIC, as pointed out regulates the registration of SMSF auditor, liquidators etc.

The ATO controls the enforcement of the rules with regards for superannuation and that of SMSF, and the auditor is supposed to be in theory the independent reviewer, who informs the ATO as to the compliance status of the SMSF.

Concerns are raised with regards to the independence of the auditor, in the situation of so called "Chinese wall" situation. It manly affects small firms, but does not mean that all small firms in this situation are problems. It is an area for review by the ATO to check the quality of the audits being undertaken.

Therefore the ATO in the past, has reviewed the SMSF auditors, to ensure not only the quality of the audits being undertaken, but also to check the compliance of the SMSF. I would assume, that it saves ATO resources with regards to firstly auditing the tax agent that prepared the accounts and the tax return, and then follow up with a review of the auditor that undertook the audit of the SMSF.



Information from ATO below

https://www.ato.gov.au/Forms/SMSF-indep ... -s-report/

Self-managed superannuation fund independent auditor's report

You should use this report if you:

are an approved self-managed super fund (SMSF) auditor
have been appointed by a trustee of an SMSF to give a report on the operation of that fund for an income year.

An approved SMSF auditor is an auditor who is registered with the Australian Securities & Investments Commission (ASIC). ASIC issues each approved SMSF auditor with an SMSF auditor number (SAN). You must include your SAN when completing this report.

Next step:

A downloadable version of this report is available Self-managed superannuation fund independent auditor’s report (NAT 11466, DOCX)

The report available at the link above is effective for reporting periods starting on or after 1 July 2016. You may use this report for audits completed for earlier periods. However, you must take care to comply with the auditing standards and legislation that applied to that earlier period.

This report will only be reissued when changes are made.
Independence

SMSF auditors must comply with prescribed independence requirements as set out in the Accounting Professional and Ethical Standards Board’s pronouncement, APES 110 Code of Ethics for Professional Accountants.

Some threats to independence can only be eliminated or reduced to an acceptable level by declining or removing yourself from the audit engagement – this includes an engagement to audit the fund where you:

are a trustee or director of a corporate trustee or a member of the fund
are a relative or close associate of a trustee or director of a corporate trustee or a member of the fund
have prepared the accounts and the statements for the fund being audited (if you are a sole practitioner, this includes instances where an employee has prepared the accounts and statements)
provide advice (such as financial or investment) to the fund being audited.

The audit report now includes a specific commitment that the auditor has complied with auditor independence requirements prescribed by the Superannuation Industry (Supervision) Regulations 1994 (SISR).

Further guidance on auditor independence and adherence to APES 110 is available in the Joint Accounting Bodies publication Independence Guide as well as in the Auditing and Assurance Standards Board (AUASB) Guidance Statement GS 009 Auditing Self-Managed Superannuation Funds on their website auasb.gov.au

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nakedadmin
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Re: Bullying and Intimidation by the ATO

Post by nakedadmin » Thu Mar 01, 2018 8:55 am

I'm not disputing the independence issues raised. Just that it seems to me like the ATO should audit the fund and if they have concerns (with how the audit was conducted) refer the auditor to ASIC. ASIC should then investigate the auditor and as the regulator make their own decision. But this is not what is happening.

I know the ATO can request the documentation from the tax payer, which would include the audit certificate, but not the auditors working papers. Those are not held by the tax payer or tax agent (unless it's the same entity).

I'd imagine that if the ATO turned up to the auditors office and said can we see your work papers the conversation would go:
ATO: As regulator of SMSFs can we see your work papers.
Auditor: I'm not a SMSF.
ATO: Yes but you audited a SMSF
Auditor: So what?
ATO: We need to check that you are a good auditor.
Auditor: But your not the regulator of auditors.
ATO: No we are not but we are so powerful that at the end of this process we just write to ASIC and they do what we tell them to without any further investigation. We own ASIC now give us the files!
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JWheldon
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Re: Bullying and Intimidation by the ATO

Post by JWheldon » Thu Mar 01, 2018 5:02 pm

Some additional information for members reading

https://www.ato.gov.au/Super/Self-manag ... ruary-2018

SMSF auditors – what you need to know now

We would like to update self-managed super fund (SMSF) auditors, trustees and professionals about our compliance work with SMSF auditors.

Approved SMSF auditors have a critical role in helping to maintain the health and integrity of the SMSF sector. We work closely with ASIC to support and regulate SMSF auditors.

When it comes to auditor compliance, prevention is better than cure. Our compliance approach is designed to support SMSF auditors as well as identify and deal with those we consider high-risk. We:

provide information and guidance to help SMSF auditors understand and comply with their professional obligations and the super laws
provide specialist support products
conduct audits and reviews of SMSF auditors where our data or intelligence indicates there may be some concerns with their compliance and behaviour.

We also provide information and advice to SMSF auditors where our data indicates areas of concern. The SMSF auditors area on our website provides substantial information on all of the above.

Below are a number of key issues we have found in our work over the past 18 months and also information about our current activities.
Key issues
Auditors who appear to be auditing funds where they have a role or responsibility for preparing the accounts and financial statements

We contacted auditors we suspected of being involved in preparing accounts and financial statements for funds they audited. We are completing full audits of auditors where the contact confirmed this was the case.

In these cases the auditor is generally a sole practitioner (ie sole-registered auditor in the business) but often with some staff. The staff typically prepare the accounts or financial statements and either the auditor, or a senior staff member, signs off on these. Our view is that this still creates an independence issue because the staff report directly to a sole-practitioner auditor.
Low-cost auditors

We have found evidence to support industry concerns that low fees might equal low quality. For example, with some low-cost auditors, we’ve found:

gaps in audit evidence
contraventions identified but not reported
instances where there was no written audit plan
limited or no use of checklists
a lack of key documentation such as trustee representation letters.

An ATO investigator, or another auditor, should be able to pick up an audit file and see how the work was done, including documentation that supports significant judgements.
Auditors who appear to be auditing a relative’s/ relatives’ funds

Where our data indicates an auditor may be auditing a relative or relatives’ funds, this raises significant concerns about whether the auditor is meeting independence requirements and we will initiate an audit. We have referred cases to ASIC.
Continuing professional development (CPD) compliance

During our compliance work we also look at compliance with CPD requirements. We have found some compliance gaps and have passed this information on to ASIC.

See also:

Compliance audit – information on our minimum expectation of audit testing in relation to the regulatory checks listed in the SMSF independent auditor’s report
Issues of concern – information on issues of concern we have found through our compliance work

Referrals to ASIC

So far this financial year, we have referred 31 SMSF auditors to ASIC for further investigation:

25 auditors had issues relating to insufficient evidence
23 of those 25 auditors also had independence issues
over half of the 31 auditors failed to ensure the fund’s assets were at market value.

In comparison, during 2016-17 we referred 22 SMSF auditors to ASIC. The increase reflects, in part, our increased focus on auditor assurance.
Our compliance work this year

This year we will visit about 300 auditors we’ve assessed as having some kind of risk, to discuss the risks identified and review their audit process with them.

See also:

Auditor compliance – information on what you can expect in an audit

To keep up to date with all the news and alerts for SMSF trustees and professionals, subscribe to SMSF News.

Also attached a case from ASIC

http://www.asic.gov.au/about-asic/media ... ruary-2018

18-055MR ASIC disqualifies NSW SMSF auditor

ASIC has disqualified Robert Mark Taylor of New South Wales from being an approved self-managed superannuation fund (SMSF) auditor for breaching fundamental independence requirements.

ASIC found that Mr Taylor had breached the auditor independence requirements of APES 110 Code of Ethics for Professional Accountants in auditing his own fund, the fund of his close family member and a fund where he was a director of the corporate trustee.

ASIC Commissioner John Price said, 'SMSF auditors play a fundamental role in promoting confidence in the SMSF sector, so it is crucial that they adhere to ethical and professional standards. ASIC will continue to take action where the conduct of SMSF auditors is inadequate.'

SMSF trustees and members can check whether their auditor is registered, or whether a person has been disqualified, by searching ASIC's SMSF auditor register at http://connectonline.asic.gov.au
Background

Information about Mr Taylor was referred to ASIC by the Australian Taxation Office (ATO) under section 128P of the Superannuation Industry (Supervision) Act 1993 (the SIS Act).

From 1 July 2013, the SIS Act required all auditors of SMSFs to be registered with ASIC. This was to ensure that all SMSF auditors meet the base standards of competency and expertise.

ASIC and the ATO work closely together as co-regulators of SMSF auditors. The ATO monitors SMSF auditor conduct and may refer matters to ASIC for possible action such as disqualification or suspension of their registration.

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