All you need to know: Auditor Contravention Report (ACR)

When it comes to self-managed superannuation funds (SMSFs), compliance with regulations is crucial. SMSF auditors play a vital role in ensuring that these funds adhere to the rules set out in the Superannuation Industry (Supervision) Act 1993 (SISA). Section 130 of the SISA specifically states that SMSF auditors must report any contraventions they know or suspect have occurred by lodging an Auditor/Actuary Contravention Report (ACR) with the Australian Taxation Office (ATO).

Why Lodge an Auditor Contravention Report (ACR)?

The purpose of the ACR is to notify the ATO of any contraventions of the SIS Act and Regulations identified during the SMSF audit. By reporting contraventions, SMSF auditors play a crucial role in maintaining the integrity of the superannuation system and protecting the interests of fund members.

Lodging an ACR is a legal requirement for approved SMSF auditors once they identify a contravention that meets one of the seven reporting criteria specified by the ATO. These criteria help determine the materiality and significance of the contraventions and ensure that the ATO is informed of any potential risks or breaches.

When Should an Auditor Contravention Report (ACR) be Lodged?

An ACR should be lodged by an approved SMSF auditor upon the completion of an SMSF audit, and the auditor has identified a contravention that meets one of the seven reporting criteria. It is important for auditors to work closely with the trustees to rectify any contraventions or develop a plan for rectification before lodging the ACR. This collaborative approach ensures that the ATO sees a proactive effort to address any breaches and lowers the risk profile of the fund.

The seven reporting criteria

When determining whether a contravention needs to be reported in an ACR, approved SMSF auditors must apply the following seven reporting criteria:

1. Fund Definition Test: Report to the ATO if the fund fails to meet the definition of an SMSF under Section 17A of the SIS Act.
2. New Fund Test: Report to the ATO all identified contraventions of specified sections and regulations, regardless of financial thresholds, if the SMSF is less than 15 months old as at the end of the financial year and the value of a single contravention exceeds $2,000. This test ensures that newly established funds are promptly brought to the attention of the ATO if any significant breaches are identified.
3. Trustee Behavior Test: Report to the ATO all identified contraventions where the trustees have previously received advice on a contravention and, after receiving such advice, breach the same section or regulation. This reporting requirement aims to address recurring breaches and promote compliance among trustees.
4. Trustee Behaviour Test: Report to the ATO all identified contraventions from previous years that have not been rectified at the time of the current audit. This test emphasizes the importance of rectifying breaches promptly and discourages the consistent non-compliance of trustees.
5. Trustee Behavior Test: Report to the ATO all identified contraventions from previous years that have not been rectified at the time of the current audit. This test emphasizes the importance of rectifying breaches promptly and discourages the consistent non-compliance of trustees.
6. Financial Threshold Test: Report to the ATO all identified contraventions of specified sections and regulations, where the total value of all contraventions is greater than 5% of the value of the fund’s total assets. This test ensures that significant breaches that may have a material impact on the fund are reported.
7. Financial Threshold Test: Report to the ATO all identified contraventions of specified sections and regulations, where the total value of all contraventions is greater than $30,000. Similar to the previous test, this criterion highlights the reporting requirement for substantial breaches that can significantly affect the fund’s financial position.

It is important to note that once an approved SMSF auditor identifies a contravention that meets any of the seven reporting criteria, they are legally obligated to complete and lodge an ACR. The concept of materiality is not applicable to these criteria, meaning that even breaches that may be considered immaterial from an auditing perspective must be reported if they meet any of the reporting tests.

Additional Requirements

In addition to the seven reporting criteria, an SMSF auditor must also report to the trustees and the ATO if they form the opinion that the financial position of the fund may be or about to become unsatisfactory. This reporting requirement applies when the value of the fund’s assets is inadequate to cover the value of the liabilities in respect of benefits accrued to fund members.

Timing Requirements

Approved SMSF auditors must adhere to the reporting requirements set out by the ATO and complete the ACR in the approved form provided. It is important to accurately assess and apply the reporting criteria to determine whether contraventions need to be reported.

The ACR must be lodged with the ATO within 28 days of completing the audit, as failure to do so may result in penalties. These penalties can amount to up to 50 penalty units, equivalent to $15,650 from 1 July 2023.

Conclusion

The Auditor Contravention Report (ACR) is an essential reporting mechanism for SMSF auditors to notify the ATO of any identified contraventions of the SIS Act and Regulations. By applying the seven reporting criteria, auditors ensure the proper reporting of significant breaches and potential risks in SMSFs. Adhering to the reporting requirements and timely lodging of the ACR helps maintain the integrity of the superannuation system and protect the interests of fund members.

At MintSuper, we specialize in providing top-tier SMSF auditing services for trustees, accountants, and financial advisors. Our experienced auditors understand the requirements of lodging an ACR and can assist you in ensuring compliance with reporting obligations. Contact us today at mintsuper.com.au to learn more about our services and how we can help you with your SMSF auditing needs.

Frequently Asked Questions (FAQ)

Q: What is an ACR?

A: An ACR, or Auditor Contravention Report, is a report that SMSF auditors are required to lodge with the Australian Taxation Office (ATO) when they identify contraventions of the Superannuation Industry (Supervision) Act 1993 (SISA) during an SMSF audit.

Q: Why should I lodge an ACR?

A: Lodging an ACR is a legal requirement for approved SMSF auditors. By reporting contraventions, auditors help maintain the integrity of the superannuation system and protect the interests of fund members.

Q: Are there any additional requirements for lodging an ACR?

A: In addition to the reporting criteria, an SMSF auditor must also report to the trustees and the ATO if they believe the financial position of the fund may be or about to become unsatisfactory. This applies when the value of the fund’s assets is inadequate to cover the value of the liabilities in respect of benefits accrued to fund members.

Q: What are the timing requirements for lodging an ACR?

A: The ACR must be lodged with the ATO within 28 days of completing the SMSF audit. Failure to do so may result in penalties.

Q: What are the consequences of not lodging an ACR?

A: If an approved SMSF auditor fails to lodge an ACR within the specified timeframe, they may face penalties. These penalties can amount to up to 50 penalty units, equivalent to $15,650 from 1 July 2023.