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Auditor Reporting Guidelines

One area of discussion that can often be rather unclear is, “when are auditors required to notify the ATO of a breach in the SIS Act?” Firstly, the auditor needs to identify a contravention. This can be black and white or conversely require plenty of correspondence to form the basis of opinion.
Once a contravention has been identified, testing is applied to determine if the breach is reportable to the ATO or simply a management letter addressed to the trustees. The ATO guidelines have a step-by-step test for reporting criteria, as below:
Test 1: Fund definition test                                                  Test 2: New fund test
Test 3: Trustee behaviour test
Test 4: Trustee behaviour test
Test 5: Trustee behaviour test                                             Test 6: Financial threshold test


Test 7: Financial threshold test

Here is a practical example of how the reporting criteria can be used:
An SMSF has $1,000,000 of gross assets. It loans $35,000 to a member of the fund.
Loaning money to a member of an SMSF is a breach in s.65 of the SIS Act.
Upon review by the auditor, the fund has passed the first 5 tests as part of the reporting criteria.
Test 6: Was the total value of all contraventions greater than 5% of fund’s total assets?
Auditors are required to report any contravention if in the normal course of conducting the audit, they form the opinion that the contravention has occurred either:
  • during the year of income being audited, or
  • before or after the year of income being audited
For example, if a contravention is identified in 2016/17 and the auditors are satisfied the contravention has been rectified, however, it wasn’t rectified until 2017/18 then a report must be lodged for both 2016/17 & 2017/18 as rectified.