Latest AAT decision on regulation of approved SMSF auditors

Introduction

Mr H was an approved SMSF auditor. However, in 2023 ASIC disqualified him from being an approved SMSF auditor. He applied for the AAT to review ASIC’s decision to disqualify him.

The AAT recently handed down the outcome of that application.

DBA Lawyers do a lot of work with approved SMSF auditors. Accordingly, we read the decision with great interest. Here is our summary of the decision, along with some practical implications.

Summary of decision

The following is only a summary. For the actual AAT decision, visit https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/AATA/2024/82.html

In 2013, Mr H was registered as an approved SMSF auditor.

Mr H was a member and director in respect of his own SMSF.

Mr H’s SMSF lodged its SMSF annual return for the 2020-21 income year on 14 October 2021, and reported that the audit was completed by Mr C on 4 October 2021. In truth, however, Mr C was not engaged by Mr H’s SMSF and did not audit it for the 2020-21 year.

Mr H became aware that Mr C (who Mr H identified as a friend) was no longer a registered as an approved SMSF auditor.

Accordingly, in June 2022, Mr H’s SMSF lodged an amendment to its 2020-21 SMSF annual return, updating the auditor details to Mr H (himself).

Naturally, as a director and a member of Mr H’s SMSF, Mr H was prohibited from auditing the fund. See s 128F(d) of the SIS Act, regulation 9A.06 of the SIS Regulations and APES 110.

Shortly afterwards, the ATO contacted Mr H. Mr H advised the ATO that:

[n]o one audited the fund. The fund is not operating and I didn’t want to pay $450 to have my fund audited as there is nothing in it. I put the auditor’s name on the annual return and then found out he was no longer auditing funds, so changed the auditor details.

Ten days later, the ATO sent Mr H a letter and a position paper notifying him it was considering referring him to ASIC. In response, Mr H wrote to the ATO that:

[The] SMSF has been inoperative since 2019.

My SMSF auditor … has now retired.

I was aware that as a SMSF auditor I was unable to audit my Fund.

As laws change I checked online to see if this was still the case and I couldn’t find that it was.

As the Fund is inactive I lodged the Annual Return with myself as auditor.

I now find that this is incorrect and have appointed [a different approved SMSF auditor] as the registered SMSF auditor.

In October 2022, the ATO referred Mr H to ASIC. In December 2022, ASIC wrote to Mr H. ASIC set out its concerns. In response, Mr H wrote to ASIC:

I made a mistake.

As laws constantly change I looked but failed to find one’s own SMSF audit signoff details on line.

When I became aware of my error I immediately appointed [a new approved SMSF auditor] as auditor.

The audit was signed off on 4th November 2022.

In January 2023, ASIC disqualified Mr H from being an approved SMSF auditor. In order to be an approved SMSF auditor a person must be, among other things, a fit and proper person. ASIC found Mr H to not be a fit and proper person.

In March 2023, Mr H requested an AAT review of the decision.

The AAT wrote that ‘Mr H’s conduct indicated dishonesty (both as a SMSF auditor and in his capacity as director of a trustee) and a lack of competence. Mr H also showed no insight as to the seriousness of his conduct.’

The AAT noted the following email from Mr H to ASIC, sent in March 2023:

The audit of my dormant SMSF was successfully completed, without incident, before the ASIC investigation was commenced.

No compliance issues were found during the audit.

No third party was adversely impacted by the slight delay in reappointing an independent auditor.

The AAT noted in respect of that:

[Mr H] has repeatedly sought to downplay his conduct as a “mistake” and, in doing so, he failed to acknowledge that he had not once, but twice, deliberately given false information to the ATO. He claimed to have “fixed it” even before ASIC became involved but conveniently overlooked the fact that he appointed a new auditor only after the ATO had alerted him to their investigation, as the abovementioned sequence of events demonstrates. This in itself gave rise to some concern about [Mr H’s] integrity. Besides acknowledging he made a mistake, [Mr H] did not show remorse.

Accordingly, the AAT was satisfied that Mr H was not a fit and proper person to be an approved SMSF auditor as he failed to demonstrate diligence, competence and integrity commensurate with the importance of the role of a SMSF auditor. The AAT affirmed ASIC’s decision.

Practical implications

Naturally, all approved SMSF auditors should carefully consider and appropriately apply all relevant professional obligations in their work.

Also, it is worth noting that all of Mr H’s correspondence appear to have found their way to the AAT. Naturally, there is an importance in ensuring that information is not false. The false information appears to have been exacerbated by then seeking to ‘downplay’ the conduct.

Accordingly, in crafting responses — even initial responses — to the ATO and ASIC, tremendous care needs to be taken. The wording and tone can matter and be relevant in any potential subsequent AAT decision.

DBA Lawyers has significant experience in advising on and drafting such responses. We are happy to be engaged by approved SMSF auditors to assist with such ATO/ASIC reviews/audits.

Related information

For related information and articles:

• Critical new ATO webpage — ALL SMSF auditors must pay close attention (https://www.dbalawyers.com.au/ato/critical-new-ato-webpage-all-smsf-auditors-must-pay-close-attention/)

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).

Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.

By Bryce Figot ([email protected]) Special Counsel and Shaun Backhaus ([email protected]) Senior Associate  DBA Lawyers

DBA LAWYERS

31 January 2024