1. The Commissioner of Taxation's referral related to, in particular, the Applicant's audit reports in respect of the accounts of the following three SMSFs for the year ended 30 June 2012:
   • (a) the Choice Business Management Pty Ltd Superannuation Fund (the Choice Superannuation Fund);
   • (b) the Cindy Samuel Superannuation Fund (the Cindy Samuel Superannuation Fund);
   • (c) the Kras Engineering Pty Ltd Superannuation Fund (the Kras Superannuation Fund).
2. On repeated occasions the Applicant has sought to describe each audit report as independent.
3. The relevant details for each of the SMSFs for the year ended 30 June 2012 were as follows:

• the Applicant was the tax agent;
  • the Applicant was the auditor as a 'Partner' in the firm 'Choice Business';
  • the date of the audit report was 14 March 2013;
  • the trustees of the SMSF were either Kras Engineering Pty Ltd (ACN 080 795 599) (Kras Engineering) or Mr Jeff and Ms Anna Krasilovsky;
  • the signatory to the trustee report was Kras Engineering;
  • the members of the SMSF were Mr Jeff and Ms Anna Krasilovsky;

• the Applicant was the tax agent;
  • the Applicant was the auditor as a 'Partner' in the firm 'Choice Business';
  • the date of the audit report was 15 June 2013;
  • the trustees of the SMSF were the Applicant and a relative of the Applicant, Ms Cindy Samuel. There was some conjecture as to whether Messrs Aaron and Nathan Fischer were also trustees but the greater likelihood is that they were not formally appointed trustees but they may have been acting in a manner to suggest they were;
  • the signatories to the trustee report were Messrs Aaron and Nathan Fischer;
  • the member of the SMSF was Ms Cindy Samuel, in respect of whom the applicant held an enduring power of attorney and was her guardian;

• the Applicant was the tax agent;
  • the Applicant was the approved SMSF auditor;
  • the date of the audit report was 24 June 2013;
  • the trustee of the SMSF was Choice Business Management Pty Ltd, in respect of which the Applicant was the sole director;
  • the signatories to the trustee report were Messrs Aaron and Nathan Fischer;
  • the member of the SMSF was the Applicant.

4. On 29 January 2014, the Applicant applied to the Australian Taxation Office to add Messrs Aaron and Nathan Fischer as trustees of the Choice Superannuation Fund. The Australian Taxation Office rejected that application on 14 February 2014. Nonetheless, the trustee report for the year ended 30 June 2012 was signed by Messrs Aaron and Nathan Fischer.
5. In respect of each of the SMSFs, the Applicant was, in addition to his roles as tax agent and auditor, the accountant for the fund.
6. The Commissioner of Taxation considered that, for all three SMSFs, the Applicant had "failed to demonstrate that he had fully considered all compliance matters as he did not have a comprehensive audit plan and compliance checklist".
7. In respect of the audit of the Kras Superannuation Fund, the Applicant did not produce evidence, such as a contract of purchase or a certificate of title, to substantiate the fund's ownership of a commercial property said to comprise 77.70% of the fund's total assets.
8. On 28 April 2015, the Respondent notified the Applicant that it had received the referral from the Commissioner of Taxation and was considering whether or not to make an order under s 130F of the Act. The Respondent invited the Applicant to make submissions. On 19 June 2015, the Applicant provided submissions.
9. On 7 October 2015, the Respondent's delegate made, pursuant to s 130F(2) of the Act, an order disqualifying the Applicant from being an approved SMSF auditor.26 The order came into effect on 14 October 2015. In deciding to make such an order, the delegate found that, in respect of his auditing of the Choice Superannuation Fund and the Cindy Samuels Superannuation Fund:
   • (a) the Applicant had engaged in an ongoing contravention of the independence requirements set out in paragraphs 290.104 and 290.144 of APES 110; and
   • (b) having regard to his response to concerns about this contravention, the Applicant had demonstrated a lack of knowledge of those requirements.
10. The delegate also found that the quality of the Applicant's audit documentation required improvement. On the basis of these findings, the delegate stated that:

Ensuring that a SMSF is audited by an independent auditor is a fundamental requirement to the integrity of the whole SMSF system. The independence requirements that Mr Samuel failed to comply with are fundamental to the role of an approved SMSF auditor. His conduct represents such a significant departure from what is expected of an approved SMSF auditor. I therefore consider that Mr Samuel is not a fit and proper person to be an approved SMSF auditor under subsection 130F(2)(d).

The quality of Mr Samuel's audits is clearly not adequate and adds further basis to my conclusion that Mr Samuel is not a fit and proper person to be an approved SMSF auditor.

1. In the circumstances, the delegate decided to disqualify the Applicant from being an approved SMSF auditor.
2. Upon reconsideration, the delegate affirmed the disqualification decision, finding that:
   • by undertaking the audits of the Choice Superannuation Fund and the Cindy Samuels Superannuation Fund, the Applicant had contravened the independence requirements set out in paragraphs 290.104 and 290.144 of APES 110;
   • in his audit reports, the Applicant had incorrectly claimed to be an independent auditor complying with auditing standards. In so asserting, the delegate found that the Applicant did not "understand the concept of independence and its purpose in the context of auditing".
   • the documentation in respect of the Kras Superannuation Fund was inadequate and the records available to the Applicant did not provide sufficient evidence to establish the fund's ownership of its most significant asset.
3. The delegate concluded that the applicant was not a fit and proper person to be an approved SMSF auditor and that he should therefore be disqualified.
4. On 21 December 2015, the Applicant applied to the Tribunal for review of the confirmed disqualification decision.

1. The issues in this proceeding are:
   • (a) whether:
     • (i) the Applicant has failed to carry out or perform adequately and properly the duties of an auditor under the Act or the Regulations or as otherwise required by law; and, furthermore or alternatively,
     • (ii) the Applicant is not a fit and proper person to be an approved SMSF auditor for the purposes of the Act; and
   • (b) if so, whether an order should be made under s 130F(2) of the Act and, if such an order should be made, the nature of the order.

APPLICATION OF THE LAW TO THE FACTS: CONSIDERATION OF THE ISSUES

Has the Applicant failed to perform adequately and properly the auditor's duties and is not a fit and proper person?

1. The Respondent asserts that the Applicant has failed to perform adequately and properly and is not a fit and proper person largely but not exclusively based on his failure to adhere to the principles of independence which is enshrined in the law.
2. In response, the Applicant makes a number of contentions most notably that he placed reliance on general information that he obtained from the ATO, from the National Tax & Accountants' Association (NTAA) and from the attitude of his industry peers in assessing independence issues.
3. He also asserts that he invited the ATO to review and analyse the systems and safeguards that he had in place so as to satisfy the independence issues.
4. The Tribunal has no reason to doubt that the Applicant believed these assertions to be true but such matters can hardly be used to support the position the Applicant has taken. The rules as set out in APES 110 make it abundantly clear that there are no safeguards that could or would mitigate the threat of breaching the independence concerns to any acceptable level.
5. Furthermore, relying on general information of an unspecified nature even if provided by the ATO (which was not, in any case, clearly established in this case) and the general attitude that was adopted by industry peers to justify a clear breach of the rules requiring independence is unacceptable and dangerous.
6. In the view of this Tribunal, the Applicant's conduct has been such that it is clear on an objective assessment of all the circumstances that the Applicant has failed to perform the auditor's duties adequately and properly.
7. The key failings can be summarised as follows:
   • (i) As the auditor of the Choice Superannuation Fund and the Cindy Samuel Superannuation Fund, the Applicant plainly breached the auditor independence requirements in APES 110. As a consequence, he contravened his professional obligations under s 128F of the Act. 
   • (ii) In his conduct of the audit of the Kras Superannuation Fund, the Applicant had insufficient evidence to establish the fund's ownership of a major asset.
   • (iii) The Applicant's audit documentation was inadequate. Among other things, he did not have a comprehensive audit plan and compliance checklist.
8. In these circumstances, the Applicant has failed to comply with two fundamental aspects of auditing: independence and diligence.
9. He has also failed to demonstrate insight into his critical deficiencies. His conduct falls very far below the standards expected and required of an approved SMSF auditor.
10. Some of his conduct is in clear contravention of the Act.
11. There was also a suggestion put by the Applicant that he was somehow locked into the appointment as the auditor and he was thus compelled to complete the audit of the various funds: Applicant's Statement of Facts. Issues and Contentions Page 5 Para 4. If that is what the Applicant is asserting (and it was not made clear at the hearing) then he has misunderstood the appointment arrangements that apply to an auditor of such funds.
12. For the sake of clarity while an auditor is appointed on an annual basis, if at any time the auditor forms the opinion that the audit would be compromised due to concerns regarding independence the auditor must immediately advise all relevant parties and cease to act as the auditor. No doubt this can and will cause practical problems in relation to the completion of the audit but that is not a basis for continuing to act. The independence rules are a key and fundamental component of the Australian superannuation framework and cannot be disregarded.
13. As the Tribunal is satisfied that:
    • the Applicant has failed to carry out or perform adequately and properly the duties of an auditor under the Act or the Regulations or as otherwise required by law; and, furthermore or alternatively,
    • the Applicant is not a fit and proper person to be an approved SMSF auditor for the purposes of the Act;

the discretionary power to make an order under s 130F (2) of the Act is enlivened.

1. Given:
   • the very serious and fundamental nature of the applicant's deficiencies;
   • his longstanding and ongoing failure to understand properly those deficiencies; and
   • the clear need to uphold the integrity of the SMSF system;

• exercises the power under s 130F (2) to make an order against the Applicant; and
• makes an order disqualifying the Applicant from being an approved SMSF auditor.

1. If the Applicant is to act again as an approved SMSF auditor, it should only occur once he has satisfied the Respondent that he understands the seriousness of the deficiencies in his conduct and that such conduct will not be repeated: s 130F(10) of the Act.

1. The Tribunal affirms the decision under review to make an order disqualifying the Applicant from being an approved SMSF auditor from 14 October 2015.

I certify that the preceding 54 (fifty -four) paragraphs are a true copy of the reasons for the decision herein of Professor R Deutsch, Deputy President

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