Background/overview
As a lawyer, I do a lot of work advising and representing approved SMSF auditors who the ATO are reviewing/auditing. I also advise and represent auditors who the ATO have referred to ASIC. Accordingly, the recent Sidhu decision very much piqued my interest. This decision involved an approved SMSF auditor (Mr Sidhu) who the ATO had audited and then referred to ASIC. ASIC had then disqualified Mr Sidhu. Mr Sidhu asked the ART to review that decision.
This article only focuses on a few aspects of the Sidhu decision. However, for those who want the full details, visit https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/ARTA/2025/994.html.
However, before considering the Sidhu decision, it is instructive to first consider some recent statistics from the ATO.
Recent ATO statistics
On 18 July 2025, the ATO published their Auditor Compliance Program results for 2024–25 (https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-newsroom/auditor-compliance-program-results-for-2024-25).
Here, the ATO state that the most common compliance issues that the ATO identified were:
- a lack of evidence to support that transactions were at arm’s length pursuant to SISA s 109;
- a lack of evidence to support that assets were reported at market value pursuant to SISR reg 8.02B;
- a lack of evidence to support that there were no charges over SMSF assets pursuant to SISR reg 13.14; and
- a lack of evidence to support that the fund’s limited recourse borrowing arrangement had met the borrowing exceptions (section 67, 67A).
This begs the question of what these compliance issues might look like in practice. The Sidhu decision can serve as illustrative examples.
Arm’s length
The ART found that it was ‘satisfied there was a failure to obtain sufficient, appropriate audit evidence to show that the Fund’s properties were maintained on an arm-length basis.’ There were a number of reasons for this. However, one reason is that ‘in relation to one of the properties, Mr Sidhu’s evidence was that he did not have a copy of the lease agreement on the audit file but was ‘pretty sure’ he knew who the tenant was.’ Accordingly, there is merit in considering ensuring that an approved SMSF auditor always has full back-to-back leases on file, examines them, and makes appropriate notations on the file.
Market value
The ART was satisfied that:
… there was a failure to obtain sufficient, appropriate audit evidence to support that the Fund’s investment properties were recorded at market value in accordance with regulation 8.02B of the SIS Regulations. Mr Sidhu’s evidence displayed his knowledge of the history of the property’s value, despite this, he did not document that knowledge but relied on:
(i) an appraisal letter from a real estate agent;
(i) representations from the trustees that they believed the value had not changed; and
(ii) a search of the property’s sale history which included its listing price.
Charges
The ART was:
… satisfied there was a failure to obtain sufficient, appropriate audit evidence about the existence of any charges over the Fund’s assets. Mr Sidhu’s evidence was that he relied on his knowledge of his client’s affairs and, knowing that nothing had changed, he did not do a title search.
I have written about this issue previously. For example, see https://www.dbalawyers.com.au/announcements/should-an-smsf-auditor-perform-a-title-search-for-each-title-each-year/
I have previously written that one course of action that might assist in quickly satisfying the ATO if the ATO reviews/audits an approved SMSF auditor’s files is if the auditor
- performs a title search for each title each year;
- reviews those title searches for charges; and
- makes appropriate notations and retain on the audit file those notations along with the title searches.
Again, I stress the above is not necessarily my view of the law or industry practice. Indeed, there might at times be alternative ways for an approved SMSF auditor to satisfy him or herself of compliance with reg 13.14. However, in light of Sidhu, and my experience with my auditor clients, I feel that there is merit in adopting the above as a typical ‘rule of thumb’.
LRBAs
The ART found that:
On the issue of Mr Sidhu failing to obtain sufficient, appropriate audit evidence to support whether the loans … were limited resource borrowing arrangements … Mr Sidhu’s evidence was, although the audit file provided to the ATO did not include a copy of the LRBA with the relevant bank, he did have them and didn’t think that it was needed to be forwarded to the ATO.
The evidence contained in Mr Sidhu’s Affidavit and provided at the hearing displays his inadequacies in obtaining sufficient audit evidence:
(i) It was not on the audit file provided to the ATO because the document would have been in prior years’ files;
(ii) the LRBA was kept on a different file at IPS, he sighted it and saw no need to make a copy and put in on the audit file; and
(iii) he did not proactively check to see if changes had occurred, but instead relied on being notified or it being raised by the IPS accountant who did other work for the trustee.
(iv) Therefore, [the ART] accept [ASIC’s] submission that reliance on assumptions made only possible because of Mr Sidhu’s familiarity with the Fund demonstrates a misunderstanding of his extent of his obligations as an SMSF auditor.
The ATO website states that the ATO’s minimum expectations of an approved SMSF auditor is that the auditor will check (among other things):
> loan documents ensure there is limited recourse available to the lender should the fund default on the borrowing
…
> express terms of any guarantee arrangements limit the rights of the guarantor to rights relating to the asset that is the subject of the arrangement.
Naturally, retaining a full copy of these documents on file can be important step for an approved SMSF auditor to evidence such a check.
Conclusions
The Sidhu decision highlights practically what an approved SMSF auditor’s files might need to look like in order to satisfy the ATO and ASIC. As regulatory scrutiny continues, adopting a thorough approach is essential to satisfy an approved SMSF auditor’s obligations.
Related articles/webinars:
- Important message for auditors — ATO wants s 104A trustee declarations retained for life of SMSF (and what to do if they’re lost) (https://www.dbalawyers.com.au/ato/important-message-for-auditors-ato-wants-s-104a-trustee-declarations-retained-for-life-of-smsf-and-what-to-do-if-theyre-lost/)
- Latest AAT decision on regulation of approved SMSF auditors (https://www.dbalawyers.com.au/ato/latest-aat-decision-on-regulation-of-approved-smsf-auditors/)
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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, Special Counsel ([email protected]).
DBA LAWYERS
24 July 2025
