“Two recent cases involving SMSF auditors, Cam & Bear Pty Ltd v McGoldrick [2018] NSWCA 110 and Ryan Wealth Holdings Pty Ltd v Baumgartner [2018] NSWSC 1502, [have] highlighted the obligation of SMSF auditors to verify asset values in the financial statements,” the ATO stated.

The two court cases held SMSF auditors responsible for investment losses. The Cam & Bear Pty Ltd v McGoldrick case was a decision by the NSW Court of Appeal, which ruled that the auditor was negligent in failing to make proper enquiries as to the recoverability of certain investments held in the fund and report back to the trustee.

The second, more recent case, Ryan Wealth Holdings Pty Ltd v Baumgartner, similarly found that the auditor’s failure to detect irregularities in the fund over a number of years meant the SMSF trustee was unable to redeem money lost on a series of unsecured loans.

The ATO stressed that SMSF auditors need to obtain sufficient appropriate audit evidence from SMSF trustees to verify the value of a fund’s investments.

While the ATO said that it is not the auditor’s job to undertake a valuation, it said that they should seek evidence that shows how the asset was valued, including the method used and the data relied upon.

“If the auditor is unable to obtain sufficient verification that material assets are valued at market value, they should qualify the financial and compliance report sections of their SMSF independent auditor’s report stating they have been unable to obtain sufficient appropriate audit evidence to verify the asset values,” the tax office said.

They should also lodge an auditor or actuary contravention report for the contravention and notify the trustees in a management letter, the ATO stated.

The ATO noted that the most common contravention not identified or reported by auditors who were referred to ASIC this year was regulation 8.02B.

SuperConcepts executive manager of SMSF technical and private wealth Graeme Colley previously told SMSF Adviser that where there is limited evidence supplied to the auditor about assets, especially more complex ones, then the fund could be hit with a contravention.

“Next year, advisers and trustees will be required to provide more thorough and comprehensive information to auditors so that they’re satisfied that the fund has made an investment which is recoverable,” Mr Colley said.

“That’s really important, because if the auditor is not satisfied or they can’t see that it’s recoverable, then they’ll likely qualify the accounts of the fund, fill out a contravention report and let the ATO work out whether the investment is recoverable under the operation of the SIS legislation.”