Douglas and Australian Securities and Investments Commission
[2022] AATA 2415
•1 August 2022
Douglas and Australian Securities and Investments Commission [2022] AATA 2415 (1 August 2022)
Division:GENERAL DIVISION
File Number(s): 2022/4716
Re:Donald Douglas
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Mr P W Taylor SC, Senior Member
Date:1 August 2022
Place:Sydney
The 7 June 2022 stay application is refused
.....................................[Sgd]...................................
Mr P W Taylor SC, Senior Member
Catchwords
Self Managed Superannuation Fund – non-compliance with relevant standards – disqualification as approved Self Managed Superannuation Fund auditor – stay of disqualification decision pending appeal
Legislation
Administrative Appeals Tribunal Act 1975 (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth)
Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth)
Australian Securities and Investments Commission Act 2001 (Cth)Cases
Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 181 FCR 130
Re Scott and Australian Securities and Investments Commission [2009] AATA 798; (2009) 51 AAR 114
Levi v Companies Auditors and Liquidators Disciplinary Board [2013] FCA 719
Secretary Department of Social Services and McNamara [2016] AATA 189Allied Asia Holdings (Aust) Pty Ltd v Australian Securities & Investments Commission [2002] FCA 566
Secondary Materials
Superannuation Industry (Supervision) Regulations 1994
Guidance Statement “GS 009 Auditing Self Managed Superannuation Funds”, September 2015
REASONS FOR DECISION
Mr P W Taylor SC, Senior Member
1 August 2022
Mr Douglas became registered as an approved Self Managed Superannuation Fund (“SMSF”) auditor in August 2013. On 24 February 2022, in the exercise of the power conferred by s 130F(2) of the Superannuation Industry (Supervision) Act 1993 (the “SIS Act”), ASIC disqualified Mr Douglas from being an approved SMSF auditor. The disqualification decision took effect from 3 March 2022. On 26 April 2022, after an internal review process, ASIC confirmed its disqualification decision.
ASIC’s disqualification decision was principally, though not exclusively, based on criticism of Mr Douglas conduct in relation to the audit of three SMSFs. ASIC’s determinative findings are outlined later in these reasons:- see paragraphs 23 to 28 below.
On 7 June 2022 Mr Douglas lodged his review application with the Tribunal. At the same time, he sought an extension of time, and a stay of the disqualification decision. ASIC does not dispute the appropriateness of extending time to regularise Mr Douglas’ review application, but it does oppose any stay of its disqualification decision.
THE TRIBUNAL’S STAY POWER
The Tribunal has the power to stay the operation or implementation of a reviewable decision, to the extent that it considers appropriate, “for the purpose of securing the effectiveness of the hearing and determination of the application for review”:- Administrative Appeals Tribunal Act 1975 (“AAT”) s 41(2). The power permits the Tribunal to impose conditions upon, and to determine the period of any stay:- AAT Act s 41(6). Exercise of the discretionary power is preconditioned on the Tribunal taking into account “the interests of any persons who may be affected by the review”.
The determinative criterion for the exercise of the Tribunal’s stay power - satisfaction about the desirability and appropriateness of the proposed orders “for the purpose of securing the effectiveness of the hearing and determination of the application for review” - is a permissibly general expression:- see Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 181 FCR 130 at [71] & [81]. The breadth of the power indicates, notwithstanding a possible limitation connoted by the expression “effectiveness of the hearing”, that the considerations informing the exercise of the stay power are not limited to the mere procedure for the conduct of the review hearing.
The basic nature of the Tribunal’s review function requires regard to the statutory scheme governing the subject matter of the reviewable decision:- see Australian Securities and Investments Commission v Administrative Appeals Tribunal[2009] FCAFC 185; (2009) 181 FCR 130 at [51]- [54] and [56]-[57] per Downes and Jagot JJ. The statutory scheme contributes to a proper understanding of the practical consequences of the reviewable decision. It also contributes to an appreciation of the materiality of the public interest to that decision, and to the exercise of the stay discretion.
The exercise of the stay power is subject to requirements to take into account the interests of “any person who may be affected by the review”, and the decision maker’s position in relation to the stay application:- see AAT Act ss 41(2) & 41(4). Those provisions, and previous decisions of both the Federal Court of Australia and this Tribunal (see Re Scott and Australian Securities and Investments Commission[2009] AATA 798; (2009) 51 AAR 114; Levi v Companies Auditors and Liquidators Disciplinary Board [2013] FCA 719 at [14]- [15]; Secretary Department of Social Services and McNamara [2016] AATA 189) support the view that a wide range of considerations permissibly inform the exercise of the stay power. That range of permissibly (and in relation to some matters, necessarily) relevant considerations include:-
(a)the nature of the reviewable decision (including the findings on which it is based)
(b)the functions and responsibilities of the statutory decision maker, and the public interest relating to them
(c)the practical consequences of the decision under review (to the parties and to any interested persons), unless its operation is the subject of a stay, after taking into account:
(i)the timing of the reviewable decision, the application, and any likely review hearing;
(ii)the ability of the applicant to pursue the review proceedings effectively
(iii)the likely practical utility of any favourable review outcome
(iv)conditions that might be imposed as a term of any stay;
(d)an applicant’s prospects of obtaining a materially more favourable outcome as a result of the review proceeding, and
(e)the reasons proffered to support, or oppose, the stay application, and the potential practical consequences of any stay.
The nature of the statutory scheme, including the procedures involved in the reviewable decision, the specificity of the findings involved in the decision reasons, and the interests (particularly the public interest) that exercise of the statutory power are intended to serve, may provide a proper basis for refusing a stay application:- Allied Asia Holdings (Aust) Pty Ltd v Australian Securities & Investments Commission[2002] FCA 566 at [10]. They are particularly likely to do so where the available material does not conduce to an appropriate degree of satisfaction that the review process has a real prospect of a more favourable outcome. Even where the Tribunal is satisfied of the prospect of such an outcome, the other kinds of permissibly relevant considerations may provide a proper basis for refusing to stay the operation of the decision under review.
SIS ACT PROVISIONS & RELATED STANDARDS RELATING TO SMSF AUDITORS
An SMSF trustee must appoint an approved auditor to report annually on the operations of the superannuation fund:- SIS Act s 35C.
ASIC has “Regulator” functions in relation to the approval, registration and disqualification of SMSF auditors:- see SIS Act ss 5, 6 and Part 16 Divisions 1 & 3. Registration is, in essence, conditional upon ASIC’s satisfaction that the auditor (i) has the prescribed qualifications, experience and competency, (ii) is unlikely to contravene the statutory obligations of an SMSF auditor, (iii) is “otherwise a fit and proper person” to be an approved SMSF auditor and, (iv) is not subject to suspension or disqualification:- SIS Act s 128B(1), (2) & (4).
Registration as an approved auditor (i) may be conditional, (ii) endures until cancelled by ASIC, the person is disqualified by ASIC, or the auditor’s death:- SIS Act s 128B(8) & 128D.
An approved SMSF auditor’s statutory obligations include:-
(a)completing prescribed continuing professional development requirements:- SIS Act s 128F(a)
(b)holding the prescribed level of professional indemnity insurance:- SIS Act s 128F(b)
(c)complying with ASIC’s competency standards and with auditing and assurance standards of the Auditing and Assurance Standards Board:- SIS Act s 128F(c) & 128Q
(d)complying with prescribed independence requirements:- SIS Act s 128F(d)
(e)providing approved forms of annual statement to ASIC, and an approved form of report to the trustee of each audited SMSF entity[1]:- SIS Act ss 35C(1), (5) & (6), 128G
(f)prompt reporting to ASIC (and to fund trustees) of opinions about relevant contraventions by, or the unsatisfactory financial position of, an audited superannuation entity:- SIS Act ss 129(3) & 130(1)&(2)
(g)timely reporting to ASIC of any attempt to unduly influence, or interfere with, the conduct of an audit:- SIS Act s 130BA.
[1]The auditor’s report to an SMSF trustee must (i) relate to the fund’s statutorily required annual financial statements (ii) include a statement of the auditor’s “independence” and, (iii) include the auditor’s opinion about the SMSF trustee’s compliance with specified statutory superannuation requirements:- SIS Act 35C(5).
ASIC may either cancel or suspend a person’s SMSF auditor registration, or disqualify the person from being an approved SMSF auditor, on various grounds. They include the auditor’s:-
(a)written request:- SIS Act s 128E(1) (cancellation)
(b)failure to comply with a registration condition:- SIS Act s 128E(2)(a) (cancellation); SIS Act s 130F(2)(b) (suspension or disqualification)
(c)audit inactivity for a continuous period of 5 years:- SIS Act s 128E(2)(b) (cancellation)
(d)failure to provide ASIC with an annual statement of audit activity:- SIS Act s 128E(2)(c) (cancellation)
(e)cessation of Australian residence:- SIS Act s 128E(2)(d) (cancellation).
(f)failure to comply with relevant audit functions and duties:- SIS Act s 130F(2)(a) (suspension or disqualification)
(g)false statements relating to either their application for registration or their annual compliance statement:- SIS Act s 128G & 130F(2)(c) (suspension or disqualification)
(h)lack of fitness for registration:- SIS Act s 130F(2)(d) (suspension or disqualification).
Any SMSF auditor disqualification order made by ASIC
(a)operates from a specified date (any date within 28 days of the order):- SIS Act s 130F(4)
(b)may be revoked by ASIC at any time, subject to ASIC’s satisfaction of the person’s fitness for registration, and likely dutiful compliance:- SIS Act s 130F(8)-(10)
(c)is a reviewable decision:- SIS Act s 10 definition paragraph (rh)
(d)may, if it is the subject of a valid internal review request, be stayed by the AAT, for the purpose of securing the effectiveness of the internal review request:- SIS Act s 344(10); AAT Act s 41(2)
(e)may be the subject of internal review by ASIC, in response to a complying timely request:- SIS Act s 344(1) –(3)
(f)may be revoked by ASIC, or confirmed or varied, after internal review:- SIS Act s 344(4)
(g)if confirmed or varied by ASIC after internal review, may be the subject of a review application to the AAT:- SIS Act s 344(8)&(9).
The Auditing and Assurance Standards Board (“AUASB”) (see paragraph 12(c) above) is a statutory entity that was established in 2004:- see the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004, Schedule 1 Part 1. The AUASB’s functions include
(a)the formulation of auditing standards for the purposes of the Corporations Act 2011
(b)the formulation of auditing and assurance standards for other purposes
(c)providing guidance on auditing and assurance matters:- see Australian Securities and Investments Commission Act 2001 s 227A(1)(a)-(c).
The AUASB’s published standards and guidance relevant to an approved SMSF auditor include the following documents (listed in order of their respective dates of issue):-
(a)Guidance Statement “GS 009 Auditing Self Managed Superannuation Funds” – issued in September 2015 (and replacing a previous Guidance Statement the AUASB had issued in September 2013;
(b)Standard on Assurance Engagements ASAE 3100 Compliance Engagements – issued in February 2017 (replacing a version that had been issued in October 2008) and applying to assurance engagements from 1 January 2018 onwards. This Standard is described as complementing ASAE 3000;
(c)Standard on Assurance Engagements ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information - issued in May 2017 and described as providing the overarching requirements for all assurance engagements other than those relating to historical financial information;
(d)Auditing Standard ASA 230 Audit Documentation – issued in December 2018
(e)Auditing Standard ASA 230 Audit Evidence – also issued in December 2018.
The September 2015 version of Guidance Statement GS 009 preceded the SMSF audits on which ASIC based its February 2022 disqualification decision. For that reason, as well as the specific focus of GS 009 on SMSF audits, and its self proclaimed purpose of aiding understanding of, and compliance with, AUASB Standards, it is appropriate (at least for present purposes) to give primary attention to the most apparently relevant and material contents of the Guidance statement. These include the following propositions and precedents:-
(a)Referring to the relationship between the audit and compliance standards:- The ASA and ASAE standards, although they are explicitly stated to have a different application to financial statement audits (on the one hand) and compliance audits (on the other hand) both have relevance to an SMSF auditor (given the required content of the audit report:- see paragraph 12(e) above), and have essentially similar underlying principles and essential requirements:- GS 009 paras 7 to 9, 24 & 135 to 140 (financial statement audit) and 269 to 360 (SIS Act compliance);
(b)Referring to ASA 210 Agreeing the Terms of Audit Engagements:- The SMSF auditor must agree the terms of engagement with the trustee “in an engagement letter or other suitable form of written agreement”. The auditor must obtain the trustee’s acknowledgement of the trustee’s own responsibilities in relation to the fund:- GS 009 para 22(c);
(c)Referring to ASA 230 Audit Documentation:- The SMSF auditor must prepare sufficient documentation to enable an experienced (third party) auditor to understand the nature of the audit procedures, their results, and the professional audit judgments and the audit conclusions:- GS 009 para 22(e);
(d)Referring to ASA 300 Planning an Audit of a Financial Report; ASA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment:; and ASA 320 Materiality in Planning and Performing an Audit:- The SMSF auditor must evaluate their own compliance in relation to independence, documenting an audit strategy and in determining the scope and timing of the audit, perhaps especially where the audit involves the supervision of others and the review of their work. The audit preparation activities and strategy formulation require the auditor to understand the nature of the SMSF, its operations and controls, and to determine materiality, for the purpose of assessing and evaluating audit risks :- GS 009 paras 22(j) to 22(l);
(e)Referring to ASA 500 Audit Evidence and ASA 505 External Confirmations:- An SMSF auditor should design (and perform) audit procedures that are “appropriate in the circumstances” to obtain “sufficient appropriate audit evidence” to provide a reasonable basis for their audit opinion. The auditor must request external confirmation “where they are considered necessary to obtain sufficient appropriate audit evidence”:- GS 009 paragraphs 22(p) & 22(r);
(f)Referring to ASA 580 Written Representations:- An SMSF auditor must request a trustee to provide a written representation of the trustee’s (i) acknowledged responsibility for the content of the fund’s financial statements, (ii) the completeness of the financial statements and, (ii) provision of all relevant information to the auditor:- GS 009 paragraph 22(z)
(g)Providing illustrative precedents:- Five appendices to GS 009 address the following matters
(i)Appendix 1:- An example SMSF audit engagement letter
(ii)Appendix 2:- An example trustee representation letter
(iii)Appendix 3:- An example audit checklist
(iv)Appendix 4:- An example of financial audit procedures
(v)Appendix 5:- An example of SMSF “independence” risks and related safeguards.
The prescribed continuing professional development requirements of an SMSF auditor are set out in the Superannuation Industry (Supervision) Regulations 1994 (“SIS Regs”). They are:-
(a)undertaking, every 3 years, 120 hours of development activity “that could reasonably be expected to enhance an approved SMSF auditor’s technical skills or professional service delivery”
(b)undertaking, as part of the 120 hour total, at least 8 hours of continuing professional development relating to SMSF audits and 22 additional hours relating to superannuation
(c)keeping a written record of the development undertaken:- SIS Regs 9A.04.
The prescribed professional indemnity requirements of an SMSF auditor are also set out in the SIS Regs. The alternative requirements are to maintain a level of insurance that either (i) has been set under a relevant “limitation of liability scheme” of a professional standards organisation or, (ii) provides coverage of at least $500,000 (for both individual claims and in the aggregate) and otherwise contains terms likely to provide indemnity for liability arising from SMSF audit conduct or omission:- SIS Regs 9A.05.
The independence requirements of an SMSF auditor are also prescribed in the SIS Regs. They are the independence requirements set out in the Code of Ethics (“APES 110”) of the Accounting Professional and Ethical Standards Board:- SIS Regs 9A.06.
OVERVIEW OF THE SMSF AUDITOR & AUDIT REQUIREMENTS
The extensive requirements outlined in the preceding paragraphs of these reasons compel the conclusion that the statutory intention is to demand high levels of integrity, competence and sound professional judgment in the conduct of SMSF audits. Emphasising that demand, the statutory provisions evidence an intention to require SMSF auditors to inform, and document their audit work, in an objectively verifiable manner. The demand, and that intention evident in the prescriptive statutory requirements, are an implicit recognition of the important public interest that the SMSF audit regime is intended to serve –the protection of both the revenue of the state and the benefits of superannuation fund members.
Against that public interest background it is relevant to observe that there are distinctions to be drawn in understanding the nature of the statutory and audit requirements. Some are inflexible. Some depend essentially on the (properly informed, but necessarily) subjective assessment of an individual auditor. Others require an ultimate conclusion, necessarily dependent both on the extent and quality of the basic audit activities, and on the auditor’s professional competence and opinion. Illustrative examples of these (necessarily impressionistic) distinctions:-
(a)Inflexible requirements:- continuing professional development, indemnity insurance, written audit engagement agreements, trustee representations, signed fund financial statements, audit reports in the approved form – see paragraphs (a), 12(b), 12(e), 17(b) & (f) above;
(b)Subjective assessments:- compliance with the independence requirement, the sufficiency of the written audit agreement, the sufficiency of the audit plan / strategy and of the audit documentation:- see paragraphs 12(d), 17 (c), 17(e), 17(g)(v) & 20 above;
(c)Ultimate conclusions:- opinions about superannuation contraventions and interference with audit conduct:- see paragraphs 12(f) & 12(f) above.
ASIC’S SUBSTANTIVE CRITICISMS OF MR DOUGLAS’ AUDIT CONDUCT
In the latter part of 2019 the Australian Taxation Office conducted a compliance review of three superannuation audits undertaken by Mr Douglas.[2] The review was prompted by the ATO’s concern that SIS Act contraventions by one of the superannuation funds had not been reported. The review process involved a meeting with Mr Douglas on 9 October 2019 and the later presentation of a “Position Paper” (dated 7 February 2020), in which the ATO outlined its various concerns. It also involved Mr Douglas providing the ATO (both before and after February 2020) with some additional audit related documents and information
[2]The three superannuation fund audits were (i) Bluegum Superannuation (YE 2016), (ii) Le Mark Executive Superannuation Fund (YE 2016) and, (iii) Pavlos Superannuation Fund (YE 2018).
The compliance review process ultimately resulted in the ATO’s 18 December 2020 referral of Mr Douglas’ audit conduct to ASIC (under SIS Act s 128P).[3] The stated reason for the referral to ASIC was the ATO’s opinion that Mr Douglas had (i) not performed adequate SMAF audits and, (ii) had contravened superannuation laws. The referral was accompanied by a statement of “Reasons for Referral”. That statement substantially repeated the criticisms the ATO had articulated in its February 2020 “Position Paper”. It did so despite acknowledging the contents of the submissions Mr Douglas had (in March 2020) made in response to the “Position Paper”.
[3]The ATO’s referral discretion is contingent on opinions that the auditor (i) is not a fit and proper person to be an approved SMSF auditor or (ii) has failed to comply with their duties or properly perform their audit functions:- see SIS Act s 128P
Subsequently ASIC’s 20 May 2021 “concerns” letter to Mr Douglas raised the same substantive concerns. Those concerns were also reflected in the findings ASIC made as the basis for the February 2022 disqualification decision.[4]
[4]In the AAT Act s 37 documents that have been lodged the February 2022 statement of reasons has been included as an attachment to ASIC’s 27 April 2022 notice of confirmation. Although the 24 February and 26 April 2022 decisions were made by different ASIC delegates, it is not clear, from the documents lodged, whether the 26 April 2022 decision maker prepared or provided a separate / additional statement of reasons for the confirmation decision:- see the s 37 docs at T1 page 8, T2 at pages 17, 18 & 32, and T9 at pages 130, 131, 145 & 146. Given the contents of the s 37 documents, and the status of the 26 April 2022 decision as a “confirmation”, I have assumed that the 7 February 2022 statement of reasons reflects the substance of the reasons for the 26 April 2022 reviewable decision.
In the Schedule to these reasons I have attempted to provide a comprehensible, but necessarily abbreviated, outline of the matters raised by both the ATO and ASIC. Regard to the Schedule shows that, in providing the outline, I have differentiated between (i) specific obligations relating to the process of conducting an SMSF audit, (ii) compliance obligations in relation to an SMSF audit report and, (iii) matters relating to Mr Douglas’ more general obligations, because of his status as an approved SMSF auditor. Where the particular matter apparently involved a failure (by either the SMSF trustee itself, or by Mr Douglas as auditor) to comply with SIS Act provisions (or the related regulations) I have indicated the relevant provisions in the Schedule.
The outline in the Schedule, at least when read with awareness of the contents of the February 2020 Position Paper, the May 2021 “concerns” letter, and the 24 February 2022 statement of reasons, indicates a range of criticisms of Mr Douglas’ audit competence and conduct. In relation to the former, ASIC was not satisfied that Mr Douglas was sufficiently aware of current SMSF statutory requirements. In relation to audit conduct, ASIC’s criticisms were summarised in the 24 February 2022 statement of reasons as Mr Douglas’ failure to comply with:-
(a)some apparently “inflexible” audit requirements – namely:-
(i)to undertake complying professional development activities
(ii)to maintain required professional indemnity insurance.
(iii)to provide an audit report in the approved form
(b)some apparently subjective audit assessment requirements - in relation to compliance with applicable Australian auditing and assurance standards concerning the planning and documentation of the audit,
(c)some ultimate audit conclusion requirements, particularly the obligation to report SIS Act contraventions, most specifically in relation to statutory requirements concerning SMSF asset composition, and SMSF borrowings.
The determinative consideration in the February 2022 statement of reasons was that Mr Douglas’ failure to perform his SMSF audit duties “adequately and properly” made it not appropriate” for him to remain as an approved auditor, and appropriate that he should be disqualified.
MR DOUGLAS STAY SUBMISSIONS
Mr Douglas’ March 2022 internal review request had been supported by various grounds. They included contentions that (i) ill health had prevented him from providing a full response to ASIC’s concerns, (ii) the irregularities relied on by ASIC, concerning only three SMSF audit clients, were aberrant and did not, in any event warrant disqualification.
Although ASIC’s 26 April 2022 decision, which confirmed the initial disqualification, must be taken to have rejected (at least the second of) those grounds, Mr Douglas contends that granting a stay of the disqualification decision would involve no significant public risk, whereas allowing the disqualification decision to continue to operate, pending the outcome of his substantive review application, would involve a significant financial hardship. He relies on the following propositions to support that essential contention:-
(a)he is able to provide additional information, not considered by ASIC (or the ATO) that would conduce to a favourable review outcome
(b)ASIC’s criticisms do not involve any allegation of dishonesty or intentional misconduct.
(c)he has an exemplary record as a company auditor (since about July 1991) and as an approved SMSF auditor (since August 2013)
(d)ASIC’s criticisms do not relate to current conduct, involve matters that occurred in tax years prior to the year ended Jun 2019, and have been substantially addressed by subsequent procedural reforms.
In seeking to emphasise the small number of audit files underlying the ATO and ASIC criticisms, Mr Douglas claims that (until the February 2022 decision) he averaged 79 audit clients per year. However, it is not clear that these all involve SMSF audits. The information summarised in the ATO’ s 7 February 2020 Position Paper indicates that, as at December 2019, Mr Douglas’ annual SMSF audit clients then numbered fewer than 30, and had been of that approximate order for several years.
It may well be that Mr Douglas will be able to provide material additional information to inform the review proceedings. For example, the material currently included in the “section 37” documents that have been lodged with Tribunal do not appear to include any of the following:- (i) the audit files for the criticised audits, (ii) the reports for those audits, (iii) the reasons for ASIC’s 26 April 2022 decision or, (iv) information relating to any other SMSF audits Mr Douglas has carried out. Neither does it appear (at least from the contents the 24 February 2022 statement of reasons) that any significant consideration has been given to the suspension or cancellation (see paragraph 13 above) as appropriate alternatives to disqualification. Finally, apart from the matters referred to in the following paragraphs, there is, as yet, no evidence about Mr Douglas’ post December 2019 SMSF audit conduct. By the same token, Mr Douglas claims about the availability of material additional information are far from persuasive, given not only the absence of that material but also the considerations that (i) he has been on notice of ASIC’s concerns since May 2021 and, (ii) it was in March 2020 (three months before his June 2022 affidavit) that he first sought a stay of the disqualification decision.
In his June 2022 affidavit Mr Douglas claims that (during “lockdown” – apparently referring to some unspecified period of Covid 19 restrictions in Victoria) he complied with his continuing professional development activities, and duly recorded them. However, the generality of this statement does not establish either the fact of due compliance or its relevance to Mr Douglas’ conduct in relation to audits he carried out prior to December 2019.
The procedural reforms on which Mr Douglas relies appear to be (i) the establishment of a “permanent” file for each audit client (see paragraph 36 below), (ii) the implementation of “checklists” to ensure compliance with audit standards. (The former assertion was part of Mr Douglas’ March 2020 submissions to the ATO. The latter assertion was made (apparently for the first time) in Mr Douglas’ June 2022 affidavit.)
ASIC’S OPPOSITION TO A STAY OF THE DISQUALIFICATION DECISION
ASIC interprets Mr Douglas stay submissions as effectively limited to reliance on the asserted financial hardship said to be occasioned by the continued operation of the disqualification decision. On that basis, ASIC disputes that the stay power in AAT Act s 41 has been enlivened. Alternatively, ASIC submits that the limited evidence and submissions advanced by Mr Douglas do not conduce to satisfaction that a stay is “desirable”. ASIC contends that the discretionary stay power should be exercised, in the circumstances of the present matter (including the likely imminence of a substantive hearing) with primary regard to the public interest.
CONSIDERATION
One aspect of ASIC’s criticisms of Mr Douglas’ audit conduct relate to inadequate planning for, and documentary substantiation of the audit process. Mr Douglas must be taken to have implicitly acknowledged the appropriateness of at least part of those criticisms. This is because his March 2020 responses to the ATO’s “Position Paper” asserted he was in the process of establishing a “permanent file” for each SMSF audit client. The contents of each permanent file would include the essential details of each fund (including the trust deed and a history of members entitlements) together with a summary of relevant statutory and accounting requirements.
Another aspect of ASIC’s criticisms was Mr Douglas’ lack of awareness, or at least lack of compliance with, current accounting standards. Mr Douglas must also be taken to accept the validity of that criticism. This is because, in his March 2020 responses, he indicated that he relied on a publication of the Australian Accounting Research Foundation. That 1997 publication could not have referred to the statutorily stipulated accounting standards applicable during the period from 2013 to 2022 (ie., the duration of Mr Douglas’s SMSF auditor registration) and appears (because of its date) unlikely to have provided an “acceptable” equivalent prescription.
Apart from the limited concessions that are implicit in Mr Douglas’ March 2020 responses, and the asserted availability of material additional information, Mr Douglas has provided no explanation of, or for, some aspects of the conduct underlying ASIC’s criticisms. Those aspects include:-
(a)The absence of audit file confirmation of enquiries sufficient to establish the SMSF eligibility of the three audited funds
(b)The failure to obtain trustee representation letters or signed financial statements for the three SMSF’s
(c)The failure to provide an audit report in the approved form
(d)The failure to obtain (or at least document) market valuations
(e)The failure to obtain the investment strategy of each SMSF
(f)The failure to obtain (or at least to record examination of) the SMSF minutes.
Against the background of the substance of ASIC’s criticisms, the concessions that are implicit in Mr Douglas’ (to date) limited responses, and the absence, in the presently available material, of any substance response to ASIC’s criticisms, Mr Douglas’ stay application relies on insubstantial and unpersuasive grounds. In those circumstances it is not necessary, and hence not desirable, to express a concluded view about ASIC’s contention that the Tribunal’s stay power has not even been enlivened by the matters (principally the assertion of financial hardship) on which Mr Douglas has relied.
As I have earlier indicated, there is a very significant public interest underlying the SIS Act SMSF audit requirements. In the light of those requirements, Mr Douglas’s financial interests in securing a stay of the disqualification decision, his reputational interests and the interests of his audit clients, do not conduce to satisfaction that a stay of the disqualification decision is “desirable”. So far as Mr Douglas’s financial interests are concerned it is far from clear what is (or would be likely to be) his level of SMSF audit activity. (Apart from the inconclusive evidence alluded to in paragraph 31 above, Mr Douglas has been incommoded by ill health following a fall, and hospitalisation, in December 2021.) And even if it were reasonable to regard those interests as substantial, the period that has elapsed since the February 2020 decision, as well as the imminence of the substantive hearing (it is listed to commence on 8 August 2022) tend against satisfaction that any stay of the decision is “desirable”. The same conclusion applies in relation to Mr Douglas’ reputational interest. This decision expresses no concluded opinion on either the justification for ASIC’s criticisms or the appropriate evaluation of those criticisms. And if the review proceedings result in a favourable outcome to Mr Douglas, his reputational interests will be sufficiently protected. So far as Mr Douglas’ audit clients are concerned, I consider their interests should currently be best protected by ensuring that any SMSF audit should be undertaken by an auditor who is currently entitled to registration, and not subject to the adverse findings ASIC has made against Mr Douglas.
As I have indicated in the preceding paragraph, nothing in these reasons should be regarded as expressing any view about, or as providing a basis for predicting the ultimate outcome of the review hearing – either adverse or favourable to Mr Douglas. There are reasons to think that information and reasoning at least potentially relevant to that outcome, are not to be found in the currently available material:- see paragraph 32 above.
CONCLUSION
Mr Douglas has failed to establish that the stay he seeks is “desirable” for the purposes of the Tribunal’s statutory power. The 7 June 2022 stay application is refused.
I certify that the preceding 42 (forty-two) paragraphs are a true copy of the reasons for the decision herein of Mr P W Taylor SC, Senior Member
.................................[Sgd].......................................
Associate
Dated: 1 August 2022
Date(s) of hearing: 8 June 2022 Solicitors for the Applicant: Sandra Ardelean Counsel for the Respondent: Felicity Bentley Solicitors for the Respondent: Aldo Paciocco
1
5
0