9 February 2016
Manager
Benefits and Regulation Unit
Personal and Retirement Income Division
The Treasury
Langton Crescent
PARKES ACT 2600
Email: strongersuper@treasury.gov.au
SMSF AUDITOR REGISTRATION
Dear Ms Lilley,
The Self Managed Superannuation Funds Professionals’ Association of Australia (“SPAA”)
welcomes the opportunity to make a submission in relation to the draft Superannuation Legislation
Amendment (Stronger Super and Other Measures) Bill (No. 2) 2012: SMSF Auditor Bill and
Superannuation (Self Managed Superannuation Fund Auditors) Fees Imposition Bill 2012 and
associated explanatory material. We have made comments on specific elements of the proposed
Bills but are still keenly awaiting the regulations referred to in the Bills and explanatory
memoranda.
SPAA encourages the Government to release the draft regulations as soon as possible to allow for
adequate and meaningful industry consultation on what the entire registration regime for SMSF
auditors will look like. It is difficult to make a proper appraisal of the legislation and its
effectiveness without having the accompanying regulations. This is especially relevant to the
transitional arrangements which many experienced SMSF auditors, including SPAA accredited
SMSF Specialist Auditors are waiting on.
The key points of this submission are:

SPAA encourages the Government to expedite the release the draft regulations on auditor
registration so that the SMSF auditor registration regime in its entirety can be evaluated.

We view the general framework is consistent with what has been previously announced but
believe that the regulations need to allow ASIC sufficient discretion to flexibly and sensibly
administer the new registration regime.

We have made a number of specific comments on the draft Bills and explanatory material
which can improve and clarify the current draft legislation.
About SPAA
SPAA is the peak professional body representing the SMSF sector throughout Australia. SPAA
represents professionals, irrespective of their personal membership and professional affiliations,
who provide advice to individuals aspiring to higher levels of participation in the management of
their superannuation savings. Membership of SPAA is principally accountants, auditors, lawyers,
financial planners and other professionals such as actuaries.
SPAA is committed to raising the standard of professional advice and conduct in the SMSF sector
by working proactively with Government and the industry. In doing so, SPAA has contributed to
SMSF advisors providing a higher standard of advice to SMSF trustees. This in turn has enabled
trustees to make more informed decisions addressing the adequacy, sustainability and longevity of
their own retirement savings. SMSFs offer trustees greater control and flexibility and have become
an integral part of the Australian Superannuation landscape by providing significant and viable
options for managers, business owners, executives and retail operators alike.
GENERAL COMMENTS
SPAA believes that the most significant elements of the new auditor registration regime will be
prescribed in the regulations that will accompany the changes proposed in the draft Bills.
Accordingly, SPAA is eagerly anticipating the Government releasing the draft regulations to
properly assess what the new registration regime will look like. The regulations are especially
important as they will prescribe relevant qualifications, practical experience, continuing professional
development requirements and audit independence requirements.
Without seeing these
regulations in conjunction with the draft legislation, it is difficult to evaluate the effectiveness of the
draft legislation and the new SMSF auditor registration regime.
Below we have made recommendations on important elements of the regime that will be
prescribed in the regulations. These recommendations are based on the details released by the
Hon Bill Shorten MP on 23 June 2012.
Qualifications
SPAA understands that auditors that have not completed a tertiary degree with an audit component
will be able to make up for this by completing an audit course with a relevant professional
association. We think this is a sensible approach to auditor qualifications. An appropriate starting
point for the regulations to be prescribed for this requirement would be audit courses provided by
organisations listed in schedule 1AAA of the Superannuation Industry (Supervision) Regulations
1994 (SIS Regulations). These organisations have proven sufficient expertise and relevance in
providing auditors with continuing professional development and training opportunities.
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Also, SPAA believes that it would be appropriate for the qualification requirement to recognise
professional qualifications in SMSF auditing. It would be appropriate that SMSF auditors that have
already demonstrated their SMSF audit competencies be exempted from the requirement to
complete an audit course. This approach would recognise auditors who have proven their
competency and professionalism with a specialist qualification in SMSF auditing and save them
additional time and cost of completing a further audit course.
For example, SPAA SMSF Specialist Auditors were required to provide evidence of their SMSF
audit experience and training history and to successfully complete a two hour intensive
examination of their SMSF audit competencies (at a Masters equivalent level), before being
awarded the SPAA SMSF Specialist Auditor designation. Requiring these auditors to undertake
an SMSF audit course will achieve very little other then to potentially impose an additional cost of
having to complete a further audit course.
For auditors who already hold a recognised specialist qualification in SMSF auditing, an exemption
from the requirement to undertake an SMSF audit course could be achieved by the regulations
giving ASIC sufficient discretion to evaluate professional qualifications that represent high
competencies and specialist audit skills.
Practical experience
The proposed requirement that an auditor have 300 hours of SMSF audit experience in the three
years prior to registration is an important pillar of the auditor registration regime and is fully
supported by SPAA. This is critical to ensure that only appropriately experienced SMSF auditors
are registered under the new regime. This is important in maintaining high industry standards and
public confidence in SMSF auditors and the SMSF sector. However, the regulations should allow
ASIC discretion in administering this requirement where it is clear that an auditor is appropriately
experienced but has not been able to fulfill the 300 hour requirement because of broken work
pattern due to illness, family or other commitments.
Continuing Professional Development
SPAA considers that the regulations should be drafted so that continuing professional development
(CPD) should be administered and developed by professional associations that have SMSF
auditors as their members. These associations are best placed to understand their members’ CPD
needs and can keep their members knowledge current. Professional associations currently play a
vital role in monitoring SMSF auditors’ competency by policing and monitoring their members’ CPD
activities. They should continue to act in this role under the new regime, with ASIC taking a
policing/monitoring role, rather than ASIC directly specifying and administering CPD requirements.
Where auditors have met the relevant CPD requirements there should be no ongoing mandatory
knowledge update exam for them.
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Auditor independence requirements
SPAA believes that any auditor independence requirements prescribed under the regulations
should be set by professional associations representing SMSF auditors. Professional associations,
such as SPAA are in the best position to set professional standards, such as independence
standards for their members. For example, SPAA already has best practice customised
independence standards that address the potential conflicts and independence requirements for
SMSF auditors (not auditors generally) which SPAA accredited SMSF Specialist Auditors must
comply with.
We believe that the regulations should reference to SMSF specific independence guidelines
developed by the professional associations supporting SMSF auditors rather than place a
dependency on the Accounting Professional & Ethical Standards Board (APESB) guidelines. This
is important as SPAA understands that up to five per cent of auditors are not members of Joint
Accounting Bodies (JAB) that are part of the APESB.
Transitionary arrangements
SPAA understands that the transitional arrangements for SMSF auditor registration will ensure that
experienced, competent auditors will be permitted to register without needing to undertake an ASIC
competency exam. SPAA supports this approach.
SPAA understands that SMSF auditors that have signed off on 20 or more SMSF audits in the 12
months prior to registration will be exempt from the exam. We consider this an appropriate level of
experience and engagement in SMSF auditing to be exempt from the exam. However, we believe
that ASIC should have discretion to exempt auditors from undertaking the competency exam in
situations where they have not completed 20 audits in the relevant period but can demonstrate
relevant experience and competency. For example, an auditor may specialise in more complex
SMSF audits and may have only signed off on 12 SMSF audits in the previous 12 months. While
they have not met the 20 audit threshold, their expertise and experience should preclude them
from being required to sit the exam.
SPECIFIC COMMENTS
Explanatory Memorandum – context of amendments
SPAA does not believe that some of the material in the ‘context of amendments’ section of the
explanatory memorandum are accurate. Paragraph 1.4 of the explanatory memorandum claims
that “audit provides assurance to the Government and general public that SMSFs are managed
appropriately.” This is correct insofar that an audit provides assurance that a SMSF is compliant
with the SIS Regulations and Superannuation Industry Supervision Act 1993 (SIS Act) but the term
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“managed appropriately” may also imply an assurance as to the appropriateness of the investment
strategy of the funds. The auditor expressly limits his or her opinion so as not to attest the
appropriateness or merits of the investment strategy of a fund.
Register of Approved SMSF Auditors
SPAA welcomes the register of Approved SMSF Auditors to enhance transparency for trustees and
SMSF advisors that select and deal with SMSF auditors. A register of approved auditors and a
register of disqualified auditors will enhance transparency and provide consumers with more
information to help them make decisions about engaging and retaining SMSF auditors.
While SPAA welcomes the creation of the registers, we are concerned that the Bills provide for
ASIC to charge a fee for inspecting the registers and that this will deter public use of the registers.
Similarly, the proposed rule that ASIC need not undertake any action or allow inspection of the
register until the fee is paid will act as a disincentive to accessing the register. SPAA believes that
the register should be publicly available for SMSF trustees and SMSF advisors for them to
determine whether someone is an approved auditor or disqualified auditor.
Furthermore, while the fees for searching or accessing the register have not yet been made public,
SPAA urges that if fees are to be charged for searching or accessing the register, they are for a
nominal amount. Whereas SPAA understands that certain detailed information may warrant a fee,
any such fee should be consistent with existing ASIC search mechanisms, such as the company
register search which has fees ranging between $9 and $36. However, SPAA finds it difficult to
understand the application of a fee for a SMSF trustee or advisor who wishes to simply peruse the
register for a potential auditor and therefore believes it would be best for consumers if access to
the register was free and open to the public.
Terminology – approved auditor
Under the new registration regime the proposed legislative term for an SMSF auditor that has been
registered by ASIC is an ‘approved SMSF auditor’. This term is very similar to ‘approved auditor’
currently used in section 10(1) of the SIS Act and regulation 1.04 of the SIS Regulations. The
similarity of the defined terms in the current and future licensing regimes may lead to confusion for
SMSF trustees seeking to engage a SMSF auditor that will be appropriately registered under the
new regime.
Accordingly, SPAA recommends that this defined term be changed to ‘registered SMSF auditor’.
We believe that this will differentiate a SMSF auditor registered under the new ASIC regime and an
approved auditor under the current SIS Regulations. This will be especially important during the
2013 transition year.
SPAA acknowledges that the term ‘approved auditor’ is used extensively throughout SIS Act and
SIS Regulations, but feels the differentiation between pre and post registration will be critical during
the transitional period.
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Competency examinations
The proposed competency exam which must be passed for SMSF auditors to be registered should
be developed by ASIC in close consultation with relevant industry stakeholders. SPAA believes
that professional associations listed in schedule 1AAA of the SIS Regulations are best placed to
assist ASIC with development of the exam.
ASIC imposing conditions on an auditor’s registration
The legislation gives ASIC power to impose conditions on an approved SMSF auditor’s
registration. SPAA does not have any issues with ASIC holding this power and understands that it
could be an important compliance and monitoring tool for ASIC. However, the broad scope of
ASIC’s power may allow it to impose a condition that would prevent the auditor from meeting his or
her statutory or professional obligations. The amending legislation and explanatory memorandum
should limit the scope of ASIC’s power to impose conditions on registration that do not prevent this.
Also, the relevant explanatory memorandum does not give any guidance as to in what
circumstances such a condition may be imposed and only gives a brief example of imposing a
condition requiring education/training and passing a competency exam. It would be useful to
SMSF auditors if the explanatory memorandum could provide more guidance as to when ASIC
may impose a condition on registration and what type of conditions it may impose. This would give
SMSF auditors greater certainty as to how ASIC will operate the registration regime and what
conditions may be imposed when registered.
Significant audit work during a five year period
ASIC’s power to cancel an approved SMSF auditor’s registration if they have not performed
significant audit work during a five year period is very broad and ambiguous. SPAA agrees with
the intention of draft paragraph 128E(2)(b) that SMSF auditors should have recent auditing
experience to be registered as an approved SMSF auditor. However, the current drafting of the
paragraph and the lack of explanation in the explanatory memorandum give little guidance as to
what is “significant audit experience”.
SPAA would like to see greater explanation of this in the explanatory memorandum, with examples
provided as possible guidance for SMSF auditors that may have taken time out of the industry or
have had a broken work pattern due to illness, family or other commitments.
Also, we believe a better approach to ensure that SMSF auditors have undertaken significant audit
work during a five year period would be to use a similar method that ASIC currently uses for
company auditors where ASIC gives auditors an opportunity to explain why they should retain their
audit registration when they have not completed sufficient audits in the preceding five years. This
would allow more flexibility for both ASIC and SMSF auditors in administering and meeting the
ongoing audit work requirements respectively.
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Professional Indemnity Insurance requirements
SPAA welcomes the draft legislation’s requirement that approved SMSF auditors be required to
have professional indemnity insurance. We believe that this requirement increases the integrity of
the SMSF auditing profession and provides a protection mechanism for SMSF trustees.
While SPAA supports the intent of this part of the draft legislation, we believe that more guidance
needs to be provided to industry as to the operation of draft section 128F(b). Firstly, the proposed
legislation and explanatory memorandum do not provide any guidance as to what would be
considered professional indemnity insurance which would be “adequate for claims that may be
made against the auditor…” We believe that this description of the professional indemnity
insurance required to be held by SMSF auditors is too ambiguous. Instead, we recommend
amending the required level of professional indemnity insurance to that which “permits claims for
SMSF audits”. We believe this amendment will ensure that SMSF auditors have appropriate
professional indemnity cover and that SMSF auditors entering the registration regime will
understand the level and type of professional indemnity insurance that they must hold to be
registered by ASIC.
Secondly, as the legislation requires an SMSF auditor be a natural person (draft section 128A(1))
and that the SMSF auditor hold professional indemnity insurance (draft section 128F(b)), it is
unclear whether a situation where an accounting practice holds a professional indemnity policy that
covers its SMSF auditors will satisfy the requirement of draft section 128F(b). As this is a common
practice for SMSF auditors, it would be helpful for the explanatory memorandum or legislation to
specifically include this type of arrangement as the type of professional indemnity insurance that
allows a SMSF auditor to be registered by ASIC.
Partially completed audits
Auditors must be registered by 30 June 2013 as approved SMSF auditors, but there is no
consideration in the draft legislation for auditors who may not wish to register, but have an audit
partly completed or are currently part of an ATO audit. This may result in complicated registration
situations for auditors, ASIC, the ATO and SMSF trustees. We suggest that there be an amnesty
period for auditors who are completing work entered into prior to 30 June 2013, or some other date
after registration is available, but are not going to register as an approved SMSF auditor. We do
not foresee this as being a significant issue but one that may affect the efficacy of the new
registration regime.
Referring auditor misconduct to professional bodies
The draft Bill has curtailed ASIC’s and the ATO’s ability to refer the details of an approved SMSF
auditor to professional bodies. SPAA believes that this change to the regulation of SMSF auditors
is a backwards step and does not support the overarching goals of the auditor registration regime.
While SPAA will still be able to apply to ASIC for certain information about auditors and
disqualifications are to be gazetted it will not be informed directly about the professional behaviour
of approved SMSF auditors who are SPAA members. This will impede SPAA’s efforts to conduct
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member disciplinary action and enforce the high professional and ethical standards it aims to
maintain for its membership. We believe that ASIC or the ATO referring certain information on
approved SMSF auditors to professional associations will support professional associations’ efforts
to self-regulate the SMSF auditing profession.
SPAA recommends that the current arrangement under section 131A of the SIS Act be retained for
approved SMSF auditors. This will allow professional associations to effectively maintain the
professional and ethical standards of their memberships and foster a cooperative approach
between regulators and professional associations.
SPAA looks forward to the release of the SMSF auditor registration regulations and the finalisation
of fess for registration and other associated costs of the registration regime (such as ASIC
database access/searches). We are also looking to forward to continue engaging and working with
Government to construct an efficient, fair and flexible SMSF auditor registration regime.
We would be happy to provide further information or to discuss this submission with you in more
detail if need be.
Contact Numbers:
Tel: (08) 8205 1900
Mrs. Andrea Slattery
Chief Executive Officer
Mr. Peter Burgess
Technical Director
Yours sincerely
Andrea Slattery
CEO
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