4.1 BACKGROUND
Given the significant role SMSFs play in Australia’s superannuation system, it is important that there is appropriate oversight of SMSF service providers, that fund investments are consistent with the purpose of superannuation and that fraudulent activity is curbed. To achieve these outcomes, the Government will:
- introduce independence requirements for SMSF auditors to ensure that SMSF audits can be relied upon to provide an objective assessment of compliance with the superannuation legislation; and
- introduce a requirement for related party transactions to be conducted through a market, or accompanied by a valuation if no market exists, to increase the transparency of these transactions and ensure that related party transactions are not used to circumvent legislative requirements.
These reforms are expected to boost Government and public confidence in the SMSF sector and aim to ensure that this growing sector can continue to prosper in an enhanced environment.
4.2 SMSF AUDITOR REGISTRATION
Discussions with stakeholders regarding the framework for SMSF auditor registration are ongoing. The Government will make an announcement on this issue when announcing its decision on the replacement of the accountants’ exemption as part of the Future of Financial Advice reforms.
4.3 SMSF AUDITOR INDEPENDENCE
The Super System Review recommended that ASIC should develop approved auditor independence standards, which SMSF auditors must meet as part of their ongoing registration requirements. The Review suggested that the independence standards should include that the auditor and auditing firm should not provide non‐audit services to the SMSF.
The Government considers that prescriptive standards are not appropriate because an assessment of auditor independence requires a holistic assessment of the individual circumstances surrounding an audit engagement. Prescriptive standards cannot address all situations and can lose relevance over time as services evolve. Instead, the principle‐based approach used in the Accounting Professional and Ethical Standards Board’s (APESB)
APES 110 — Code of Ethics for Professional Accountants is more appropriate because it allows the individual circumstances of an audit engagement to be taken into account and requires auditors to be independent both in fact and in appearance.
The Government will legislate to require SMSF auditors to comply with APES 110 as a condition on their registration and will request the APESB to develop guidance for SMSF auditors on how APES 110 applies in the SMSF context. Guidance will assist with SMSF auditors’ understanding of independence.
4.4 TRANSACTIONS INVOLVING RELATED PARTIES
The Super System Review recommended that the superannuation legislation should be amended so that acquisitions and disposals between SMSFs and related parties must be conducted through a market where one exists. If no underlying market exists, the transactions must be supported by a valuation from a suitably qualified independent valuer.
Concerns were raised in consultation that requiring related party transactions to be conducted through a market could involve transaction risk and result in increased costs. However, non‐market transactions are not transparent and are open to abuse. Abuse can occur through transaction date and asset value manipulation to achieve more favourable outcomes in terms of contributions caps and capital gains tax.
The Government will legislate to require related party transactions to be conducted through the market where one exists. If no market exists, the transaction must be supported by a valuation from a suitably qualified independent valuer. The ATO’s publication of valuation guidelines, which was also recommended by the Super System Review, will provide guidance for obtaining valuations for related party transactions where there is no underlying market.
APRA will consider whether similar restrictions should apply to APRA‐regulated funds.
4.5 OTHER SMSF ISSUES
Following consultation, all of the other SMSF recommendations will be implemented in line with the Government’s response to the Super System Review in December 2010, with one exception. The Government considers that SMSFs should have the flexibility to tailor their trust deeds and that SMSF trustees should be aware of the obligations imposed by their trust deed. Therefore, the Government will not amend the superannuation legislation to automatically deem anything permitted by the superannuation or taxation legislation to be permitted by SMSF trust deeds.
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