Islam and Australian Securities & Investments Commission (Taxation and business)

[2024] ARTA 88

Islam and Australian Securities & Investments Commission (Taxation and business) [2024] ARTA 88 (18 December 2024)

Applicant:MD Nazrul Islam

Respondent:  Australian Securities and Investments Commission

Tribunal Number:                2024/2652

Tribunal:General Member J Dunne   

Place:Melbourne

Date:18 December 2024   

Decision:The Tribunal affirms the decision under review.

...................................[SGD].....................................

General Member J Dunne

Catchwords

SUPERANNUATION – Self Managed Superannuation Fund (SMSF) – where applicant was disqualified from being an approved SMSF auditor – whether applicant a fit and proper person – whether applicant  failed to carry out or perform adequately and properly the duties of an approved SMSF auditor – whether breach of auditing standards – whether disqualification order appropriate - specific and general deterrence – protection of public – integrity of superannuation system  - decision under review affirmed

Legislation

Administrative Review Tribunal (Consequential and Transitional Provisions No.1) Act 2024 (Cth), Part 5 of Schedule 16

Australian Securities and Investments Commission Act 2001 (Cth), s 227B

Corporations Act 2001 (Cth), s 336

Superannuation Industry (Supervision) Act 1993 (Cth) ss 17A, 35C, 52B(2)(f), 71, 128B, 128F, 128P, 130F, 344

Superannuation Industry (Supervision) Regulations 1994 (Cth) regs 4.09, 8.02B, 9A.04, Division 13.3A

Cases

Abichandani and Australian Securities and Investments Commission [2016] AATA 879

Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321

Australian Securities and Investments Commission v Gilliland [2022] FCA 1421

Brown and Australian Securities and Investment Commission [2009] AATA 286

Confidential and Commissioner of Taxation [2011] AATA 403

Davies v Australian Securities Commission and Companies Auditors and Liquidators Disciplinary Board [1995] FCA 1496

Douglas and Australian Securities and Investments Commission [2022] AATA 2415

Fearon and Australian Prudential Regulation Authority [2006] AATA 918

Henley and Australian Securities and Investments Commission [2024] AATA 82

Hughes & Vale Pty Ltd v New South Wales (No.2) (1955) 93 CLR 127

Irish Woollen Co Ltd v Tyson (1900) Acct LR 13

Pacific Acceptance Corporation Ltd v Forsyth (1970) 92 WN (NSW) 29

Re Hakaoro and Minister for Immigration and Multicultural Affairs (1998) 26 AAR 534

Re Kingston Cotton Mill Company (No.2) (1896) 2 Ch 279

Re Su and Tax Agents’ Board of South Australia (1982) 82 ATC 4, 284

Statos v Tax Agents’ Board of New South Wales (1990) 90 ATC 4, 950

Townshend and Australian Securities and Investments Commission [2023] AATA 3810

Whittle and Australian Securities and Investments Commission [2018] AATA 1861

Secondary Materials

Australian Securities and Investment Commission, Registration of self-managed superannuation fund auditors (RG 243, 4 March 2019)

Australian Securities and Investment Commission, ASIC Class Order – Competency standards for approved SMSF auditors (CO 12/1687, 17 December 2012, repealed by schedule 1 of the ASIC Superannuation (Repeal) Instrument 2023/222)

Australian Taxation Office, PS LA 2018/1 – Self-managed superannuation funds – referral of approved SMSF auditors to ASIC (Practice Statement, updated 20 June 2024)

Australian Auditing and Assurance Standards Board, Auditing Standard ASA 200 – Overall  Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards (Auditing Standard, 1 December 2015)

Australian Auditing and Assurance Standards Board, Auditing Standard ASA 230 – Audit Documentation (Auditing Standard, 4 January 2019)

Australian Auditing and Assurance Standards Board, Auditing Standard ASA 300 – Planning an Audit of a Financial Report (Auditing Standard, 14 December 2022)

Australian Auditing and Assurance Standards Board, Auditing Standard ASA 315 – Identifying and Assessing the Risks of Material Misstatement (Auditing Standard, 14 December 2023)

Australian Auditing and Assurance Standards Board, Auditing Standard ASA 500 – Audit Evidence (Auditing Standard, 14 December 2022)

Australian Auditing and Assurance Standards Board, Auditing Standard ASA 580 – Written Representations (Auditing Standard, 22 March 2023)

Australian Auditing and Assurance Standards Board, Guidance Statement GS 009 – Auditing Self-Managed Superannuation Funds (Guidance Statement, June 2020)Commonwealth, Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Bill 2012 (Cth), House of Representatives, 19 September 2012 (Bill Shorten, MP)

‘SMSF profile’, Australian Taxation Office (Web page, 20 February 2023) < SMSF profile | Australian Taxation Office>.

‘Approved SMSF auditor checklist – what we look for when auditing the auditor’, Australian Taxation Office (Web page, 16 August 2024) <Approved SMSF auditor checklist – what we look for when auditing the auditor | Australian Taxation Office>.  

‘Compliance audit’, Australian Taxation Office (Web page, 15 December 2022) <Compliance audit | Australian Taxation Office>.

‘Support for self-managed super funds’, Australian Taxation Office (Webpage, 9 August 2022) <Support for self-managed super funds | Australian Taxation Office>.

‘Addendum for financial years impacted by COVID-19’, Australian Taxation Office (Web page, 19 January 2023) <Addendum for financial years impacted by COVID-19 | Australian Taxation Office>.

‘Your self-managed superannuation fund (SMSF) investment strategy, Australian Taxation Office (Web page, 16 December 2022) <Your self-managed superannuation fund (SMSF) investment strategy | Australian Taxation Office>.

Statement of Reasons

ISSUES FOR CONSIDERATION

1. The Applicant, Mr Islam, has sought a review in this Tribunal[1] of the decision by the Respondent, the Australian Securities and Investments Commission (‘ASIC’), to disqualify him from being an approved Self-Managed Superannuation Fund (‘SMSF’) auditor. ASIC’s decision was made pursuant to section 130F of the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SIS Act’).

   [1] This matter was originally filed in the Administrative Appeals Tribunal and has been transferred to this Tribunal, in accordance with Part 5 of Schedule 16 of the Administrative Review Tribunal (Consequential and Transitional Provisions No.1) Act 2024 (Cth).

2. The issues for consideration by the Tribunal are:

   a.whether Mr Islam has failed to carry out or perform adequately and properly the duties of an approved SMSF auditor under the SIS Act, the Superannuation Industry (Supervision) Regulations 1994 (Cth) (‘SIS Regulations’) or Australian law; and

   b.whether it was appropriate for ASIC to have made the decision under section 130F of the SIS Act to disqualify Mr Islam from being an approved SMSF auditor (the ‘disqualification decision’).

3. For the reasons noted below, the answer to both of those issues is yes, and the disqualification decision is affirmed.

   BACKGROUND

4. Mr Islam was approved as a SMSF auditor under section 128B of the SIS Act effective from 18 July 2013.

5. Mr Islam was engaged by numerous SMSF clients as an approved SMSF auditor. ASIC records that Mr Islam completed 252 SMSF audits in the 2019 income year, 296 SMSF audits in the 2020 income year and 386 SMSF audits in the 2021 income year.[2] In his evidence before the Tribunal, Mr Islam accepted that the number of SMSF audits noted by ASIC in those years were ‘about right’. Mr Islam also advised the Tribunal that he has two staff[3] and does a mix of work, including some accounting work.

   [2] T6-3, 478, [9].

   [3] The Tribunal understands that the specified SMSF audit numbers are carried out and signed by Mr Islam and nobody else.

6. In late 2022, the Australian Taxation Office (‘ATO’) selected three of Mr Islam’s audits for compliance review. The three audits were the D Super Fund (‘D Fund’) for the 2020 income year, the Y Superannuation Fund (‘Y Fund’) for the 2020 income year and the M Superannuation Fund (‘M Fund’) for the 2021 income year. Mr Islam provided the audit files for each of those audits to the ATO on 2 November 2022.[4]

   [4] T15, T16, T17. The index to the T Documents refers to these materials as being dated “13 June 2023” – this is the date the ATO sent those materials to ASIC.

7. The ATO issued a Position Paper to Mr Islam on 16 January 2023[5] expressing its concerns about those audit files. Mr Islam responded to the Position Paper on 13 February 2023[6] and provided further material on 14 February 2023.[7] Mr Islam says that further material was also on the audit file. After considering that response and additional material, the ATO referred the matter to ASIC under section 128P of the SIS Act on 13 June 2023. [8] This referral was on the basis that Mr Islam failed to carry out or perform adequately and properly the duties and functions of an approved SMSF auditor at Australian law.

   [5] T3-2.

   [6] T3-6, T3-7, T3-8, T3-9.

   [7] T10-35, T11, T12, T13, T14, T18. The index to the T Documents refers to these materials as being dated “13 June 2023” – this is the date the ATO sent those materials to ASIC.

   [8] T3-4, 58, [1].

8. ASIC considered the material and issued a “show cause letter” to Mr Islam on 1 August 2023[9] to which Mr Islam responded in writing on 21 September 2023.[10]

   [9] T4-1.

   [10] T5-1.

9. On 12 February 2024, ASIC issued the disqualification decision.[11] The disqualification decision was effective from 19 February 2024.[12]

   [11] T6.

   [12] T6-1 and T6-2, 476.

10. On 17 February 2024, Mr Islam sought reconsideration of the disqualification decision under section 344 of the SIS Act.[13] On 22 March 2024, ASIC confirmed its disqualification decision and provided written notice of that to Mr Islam by email dated 25 March 2024.[14]

    [13] T7.

    [14] T2.

11. On 17 April 2024, Mr Islam sought a review of the disqualification decision in this Tribunal.[15] The Tribunal has powers of review by virtue of subsection 344(8) of the SIS Act.

    [15] T1.

    The statutory and regulatory context

12. Approved SMSF auditors independently ensure that an SMSF has met its obligations under Australian law. SMSFs are one of the largest sectors in the Australian superannuation industry.[16] Administrative Appeals Tribunal and Federal Court[17] decisions have noted the significance of the approved SMSF auditor to the SMSF superannuation system.

    [16] ‘SMSF profile’, Australian Taxation Office (Web page, 20 February 2023) < SMSF profile | Australian Taxation Office>.  

    [17] Henley and Australian Securities and Investments Commission [2024] AATA 82 at [3] to [8]; Douglas and Australian Securities and Investments Commission [2022] AATA 2415 at [9] to [21]; Whittle and Australian Securities and Investments Commission [2018] AATA 1861 at [15] to [31]; Townshend and Australian Securities and Investments Commission [2023] AATA 3810 at [28]; Australian Securities and Investments Commission v Gilliland [2022] FCA 1421 at [6]. For example, in Henley and Australian Securities and Investments Commission [2024] AATA 82 at [36] the Second Reading Speech to the Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Bill 2012 (Cth) is cited to confirm the vital role of SMSF auditors.

13. The integrity of approved SMSF auditors is subject to regulatory oversight by the ATO and ASIC,[18] and obligations are imposed upon approved SMSF auditors under the SIS Act, SIS Regulations, auditing standards made by the Auditing and Assurance Standards Board and other professional obligations.

    [18] The importance of the regulatory oversight in the context of SMSFs cannot be understated. Sections 4 to 6 of the SIS Act records the supervision responsibilities of the regulators, including ASIC. ASIC is stated as being “generally responsible for protecting consumers from harm, market integrity, disclosure and record keeping.”

14. The statutory and regulatory context in relation to SMSF auditors includes, relevantly, the following matters:

    a.SMSF trustees are required to appoint an approved SMSF auditor and to provide relevant documents requested by that person within 14 days of that request being made. If SMSF trustees do not meet either of those obligations, it is an offence which can be punishable by imprisonment – section 35C of the SIS Act.

    b.A person must be registered by ASIC pursuant to section 128B of the SIS Act to be an approved SMSF auditor. To be registered, amongst other matters, section 128B provides that person must meet competency standards[19] and have the qualifications and practical experience prescribed by the SIS Regulations.

    [19] Australian Securities and Investment Commission, ASIC Class Order – Competency standards for approved SMSF auditors (CO 12/1687, 17 December 2012, repealed by schedule 1 of the ASIC Superannuation (Repeal) Instrument 2023/222).

    c.There are ongoing obligations imposed on approved SMSF auditors under section 128F of the SIS Act, all of which must be met. These obligations include meeting continuing professional development obligations (set out in regulation 9A.04 of the SIS Regulations)[20] and complying with auditing standards made by the Auditing and Assurance Standards Board under section 336 of the Corporations Act 2001 (Cth) and section 227B of the Australian Securities and Investments Commission Act 2001 (Cth). This means it is not sufficient to point to compliance with continuing professional development obligations as compliance with auditing standards and all other obligations under section 128F is required.

    [20] Some of Mr Islam’s material filed at the Tribunal, including the CPD list filed on 28 October 2024, focuses on this requirement.

    d.Relevant applicable auditing standards[21] include:

    [21] ‘Approved SMSF auditor checklist – what we look for when auditing the auditor’, Australian Taxation Office (Web page, 16 August 2024) < Approved SMSF auditor checklist – what we look for when auditing the auditor | Australian Taxation Office>. Provides guidance for SMSF auditors referring to auditing standards that SMSF auditors need to consider. The standards listed in these reasons for decision are the most relevant to this particular case, but others are applicable. For the avoidance of doubt, when these auditing standards are considered for the D Fund, Y Fund and M Fund, the Tribunal considered the standards in their applicable version in the years in which those audits were completed - 2020 and 2021.

    i.Guidance Standard GS 009 Auditing SMSFs,[22] a resource for approved SMSF auditors to relevant applicable standards (including those noted below).

    [22] In reaching and confirming its disqualification decision ASIC relied upon GS 009 (in its form relevantly applicable to the D Fund, Y Fund and M Fund): T2-1, 13, [11] and [12]; T6-3, 483, [23]-[26]. GS 009 cites other relevant standards.

    ii.ASA 300 Audit Strategy and Audit Plan: the file should contain evidence of an audit plan and, while not compulsory, a checklist should be considered.

    iii.ASA 230 Audit documentation, which provides, relevantly, that:

    -Audit documentation must be “sufficient to enable an experienced auditor, having no previous connection with the audit to understand … [t]he results of the audit procedures performed, and the audit evidence obtained; and [s]ignificant matters arising during the audit, the conclusions reached … and significant professional judgements made in reaching those conclusions.” The commentary to GS 009 and ASA 200 provides that sufficient audit evidence relates to the quantity of evidence and adequate or appropriate relates to the quality of that evidence.

    -“The auditor shall document discussions of significant matters with management, those charged with governance, and others, including the nature of the significant matters discussed and when and with whom the discussions took place”. 

    -“After the assembly of the final audit file has been completed, the auditor shall not delete or discard audit documentation of any nature before the end of its retention period”.

    iv.  ASA 500 Audit Evidence, which relevantly requires that:

    -Audit procedures shall be designed and performed for the purpose of obtaining “sufficient appropriate audit evidence” in the circumstances of the engagement.

    -The auditor shall consider “the relevance and reliability of information to be used as audit evidence”, shall “evaluate whether the information is sufficiently reliable” and design “tests of controls and tests of details”.

    v.   ASA 200, which is applicable to all audits and contains overall objectives of independent auditors. ASA 200 states relevantly that “the auditor exercise professional judgement and maintain professional scepticism throughout the planning and performance of the audit” and, amongst other things, to “[o]btain sufficient appropriate audit evidence about whether material misstatements exist, through designing and implementing appropriate responses to the assessed risks.”

    vi.  In terms of scepticism, ASA 200 provides  “Professional scepticism means an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.” It includes for instance “being alert to … Audit evidence that contradicts other audit evidence obtained ... [and] Information that brings into question the reliability of documents and responses to enquiries to be used as audit evidence.” ASA 200 also notes, “The auditor may accept records and documents as genuine unless the auditor has reason to believe the contrary. Nevertheless, the auditor is required to consider the reliability of information to be used as audit evidence.”

    vii. ASA 580 deals with when written representations from management or those in charge of governance (such as SMSF trustees) can be audit evidence. ASA 580 acknowledges that written representations are audit evidence and then says at paragraph 4 “[a]lthough written representations provide necessary audit evidence, they do not provide sufficient appropriate evidence on their own about any of the matters with which they deal.” ASA 580 goes on to say at paragraph 17 (A23), “[I]f written representations are inconsistent with other audit evidence, the auditor shall perform audit procedures to attempt to resolve the matter. If the matter remains unresolved, the auditor shall reconsider the assessment of the competence, integrity, ethical values or diligence of management, or of its commitment to or enforcement of these, and shall determine the effect that this may have on the reliability of representations (oral or written) and audit evidence in general.”

    e.Section 130F of the SIS Act provides the ability for ASIC to order that an approved SMSF auditor is either suspended or disqualified. Subsection 130F(2) of the SIS Act provides that:

    (2)The Regulator may make a written order disqualifying a person from being an approved SMSF auditor, or suspending a person’s registration as an approved SMSF auditor, if:

    (a)   the person has failed, whether within or outside Australia, to carry out or perform adequately and properly:

    (i)the duties of an auditor under this Act or the regulations; or

    (ii)any duties required by a law of the Commonwealth, a State or a Territory to be carried out or performed by an auditor; or

    (iii)any functions that an auditor is entitled to perform in relation to this Act or the regulations or the Financial Sector (Collection of Data) Act 2001; or

    (b)   the person has failed to comply with a condition, or additional condition, imposed under section 128D on the person’s registration as an approved SMSF auditor; or

    (c)   the person has made a false declaration in:

    (i)an application for registration as an approved SMSF auditor; or

    (ii)a statement given to the Regulator under section 128G; or

    (d)   the person is otherwise not a fit and proper person to be an approved SMSF auditor for the purposes of this Act.

1. When considering paragraph 130F(2)(a) and particularly the meaning of “adequately and properly”, which is not defined in the SIS Act, case law is of assistance. In Brown and Australian Securities and Investment Commission [2009] AATA 286, Deputy President Forgie was considering whether a financial services licensee carried on business under its licence adequately and properly. At [119], [126]–[127] Deputy President Forgie said:

   “119. What is meant by the words “adequately and properly” are more problematic.…

   126. …[I]t seems to me that a consideration of whether a person has carried on a business under a licence “adequately” requires a consideration of whether that person has done so competently. A consideration of whether the person has done so “properly” goes beyond notions of adequacy to encompass notions of appropriateness and of propriety. It is not enough, for example, for the person to give an appearance of acting adequately by observing the strict letter of the law if acting dishonestly and so improperly. These concepts would seem to be consistent with the interpretation of the expression “adequately and properly” adopted by Burchett J in Capricorn Financial Planners Pty Ltd v Australian Securities and Investments Commission and Anor [(1999) 17 ACLC 855 at 858] when he said:

   “... it seems to me that, in this regulation, the word ‘adequately’ at least embraces the meaning of ‘competently’, and the word ‘properly’ at least embraces compliance with the law governing the duties of fiduciaries, including the obligation not to act in a way involving a conflict of interest.”

   127. Burchett J did not expand upon what it means to conduct a business “competently”. Implicit in his reference to the law governing the duties of fiduciaries in the context of “properly” is an acknowledgement that the term may encompass a more broadly based enquiry. It seems to me that the inquiry whether a person has carried on business adequately and properly must begin with a consideration of what is required of the licensee followed by an inquiry regarding the behaviour or actions complained of. That enquiry will encompass matters such as the nature of the business that is authorised, the duties imposed upon the person by statute by virtue of being licensed and any duties that are imposed upon the person under the general law by virtue of conducting such a business. … One cannot be viewed in isolation from the other for the more general view places the particular circumstances in their context and the context provides a benchmark of some sort for assessing the particular circumstances.”

2. In Confidential and Commissioner of Taxation [2011] AATA 403 at [79]–[80] and [85]–[87], Senior Member Walsh held that an approved SMSF auditor had failed to perform his duties under the SIS Act adequately and properly because he failed to identify and report contraventions of the SIS Act, failed to identify a breach of his independence requirements, breached the Corporations Law and failed to meet CPA professional standards. In a different statutory context, in Davies v Australian Securities Commission and Companies Auditors and Liquidators Disciplinary Board [1995] FCA 1496 at [96] and [100], the Federal Court noted in obiter that if a failure to perform a statutory or other duty was insignificant, de minimis or trivial, it could be maintained that an auditor had not failed to carry out or perform the relevant duty adequately. However, reasonableness or bona fides were held to not be relevant when considering whether an auditor had failed to adequately and properly perform their duties.

3. When considering paragraph 130F(2)(d) and particularly the meaning of “fit and proper”, which is not defined in the SIS Act, case law establishes relevant considerations include character, honesty, integrity, reputation, knowledge, skills, judgment, capability, conduct and whether any impugned conduct is likely to recur: Henley and Australian Securities and Investments Commission [2024] AATA 82 at [26]-[28]; Abichandani and Australian Securities and Investments Commission [2016] AATA 879 at [9]-[10]; Statos v Tax Agents’ Board of New South Wales (1990) 90 ATC 4,950 at 4,959; Re Su and Tax Agents’ Board of South Australia (1982) 82 ATC 4,284 at 4,286; Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 380; Hughes & Vale Pty Ltd v New South Wales (No.2) (1955) 93 CLR 127 at 156. The context of the legislative or regulatory provision in which the fit and proper test sits is also relevant to its interpretation: Re Hakaoro and Minister for Immigration and Multicultural Affairs (1998) 26 AAR 534 at 540.

4. Section 130F provides that suspension or disqualification of an approved SMSF auditor can be considered by ASIC. ASIC considered suspension and imposing future conditions on Mr Islam’s registration as an approved SMSF auditor (such as peer review of his SMSF audits). ASIC concluded this would be inadequate including for reasons of general deterrence and considered disqualification was appropriate.[23] Specific and general deterrence are relevant considerations when the Tribunal reviews a disqualification decision: Australian Securities and Investments Commission v Gilliland [2022] FCA 1421 at [29] and following. I consider both specific and general deterrence in my reasons below.

   [23] T2-1, 16, [18.2] and 20, [22] and [44] and T6-3, 517, [292].

5. This statutory and regularity architecture reflects Parliament’s intention that high levels of integrity and competence are required of an approved SMSF auditor.

   REASONS FOR DECISION

6. I have considered the law, the submissions, the material in the T documents and material otherwise before the Tribunal,[24] including each of the audit files and other material as provided to the ATO and ASIC. I have also considered the evidence presented at the hearing by Mr Islam and the closing submissions of both parties. I summarise this material in my reasons below.

   [24] Including CPD material provided by Mr Islam on 28 October 2024.

   Preliminary issue – Fit and proper person

7. ASIC concluded that Mr Islam’s audits of the D Fund, Y Fund and M Fund demonstrated a failure to carry out or perform adequately and properly the duties of an auditor under the SIS Act, the SIS Regulations and auditing standards.[25] The issue of whether Mr Islam is a fit and proper person to be an approved SMSF auditor under the SIS Act is not directly at issue in the disqualification decision.

   [25] T6-3, 483, [20].

8. However, this question arises on the facts. ASIC’s Regulatory Guide 243 includes at paragraph 243.38[26] matters that may indicate a person is not a fit and proper person to be an approved SMSF auditor. These include:

   a.At subparagraph (a): “You have not carried out or performed adequately and properly the duties and functions of an approved SMSF auditor”;[27]  …

   b.At subparagraph (g) “You have been obstructive, misleading untruthful in dealing with regulatory bodies”.

   [26] This is also cited by the ATO in PS LA 2018/1.

   [27] This reference must refer to issues outside those specified in paragraph 130F(2)(a), as paragraph 130F(2)(d) of the SIS Act refers to a person being otherwise not a fit and proper person. This means that a failure to observe auditing standards applicable under s 128F of the SIS Act cannot be the reason to apply paragraph 130F(2)(d) of the SIS Act.

9. ASIC says that both of those matters apply to Mr Islam.[28]

   [28] ASIC’s Outline of Closing Submissions dated 18 November 2024, [61].

10. In its “show cause” letter ASIC indicated that it was considering this issue[29] but it ultimately never reached a conclusion on this aspect. When asked by the Tribunal at the hearing, ASIC did not strongly press the fit and proper person test, presumably because that was not the basis for its disqualification decision. At the hearing ASIC submitted that Mr Islam’s disavowal of significant aspects of his letter to ASIC dated 21 September 2023[30] in evidence before the Tribunal led to concern in respect of whether he was a fit and proper person to be an approved SMSF auditor.

    [29] T4-1, 2.

    [30] T5-1.

11. In its closing submissions, ASIC pressed this issue more firmly.[31] ASIC relied upon its assertion that a false statement was made by Mr Islam to the ATO,[32] the nature of Mr Islam’s evidence before the Tribunal and Mr Islam’s disavowal of submissions made to ASIC (such as the 21 September 2023 letter), which misled the regulator, to submit he was not a fit and proper person. At the hearing Mr Islam took a different view, submitting that he had met the SIS Act and SIS Regulations, met CPD requirements and performed his audits consistently with auditing standards. Mr Islam submitted that those facts mean that he is a fit and proper person.

    [31] See [54]-[66] ASIC’s Outline of Closing Submissions dated 18 November 2024.

    [32] As is noted below at [‎33]-[44] I do not find that Mr Islam made a false statement to the ATO.

12. In the context of the SIS Act, the fit and proper person provision is tailored by the word otherwise i.e., paragraph 130F(2)(d) of the SIS Act the person is otherwise not a fit and proper person to be an approved SMSF auditor for the purposes of this Act. That means that failing to adequately perform his duties as an approved SMSF auditor under the SIS Act or SIS Regulations is not sufficient. That is because that matter is covered in another paragraph 130F(2)(a) of the SIS Act. Something more is required.

13. I have concluded that something more is present in this case. I acknowledge that Mr Islam has operated a business for a considerable period, is involved in his community, cares about his clients, and has good intentions. I have also given Mr Islam the benefit of the doubt where it appeared there may be interpretation problems and misunderstanding, as English is not Mr Islam’s first language. The stress of proceedings and representing himself was also a factor which I weighed in favour of Mr Islam. Even taking all of that into account, Mr Islam’s evidence before the Tribunal was unimpressive. He was evasive and inconsistent both in his oral evidence as a whole, and between his oral evidence and written submissions to ASIC and the ATO. At times I found his evidence lacked credibility.[33] If his evidence was accepted, Mr Islam would be saying he has withheld material from the regulators. Mr Islam did not appear to recognise that the manner in which he was presenting his case actually undermined it. I have given the nature of Mr Islam’s evidence before me greater weight when thinking about the fit and proper person test.

    [33] This is particularly in relation to Mr Islam’s evidence before the Tribunal that he had certain documents (such as a Loan Document for the M Fund and a Share Sale Agreement or Share Subscription Agreement for the D Fund). I do not accept that evidence.

14. Mr Islam’s disavowal of submissions made in his letter dated 21 September 2023[34] in his evidence before the Tribunal was one of the most concerning aspects of his evidence. Until the hearing Mr Islam made no effort to correct any submissions in that letter to ASIC which he now claims are wrong. He had more than a year to raise these issues and correct those submissions with ASIC. He did not do so. He also claimed in evidence before the Tribunal that he had material from the audit files in question that he still had not provided to the regulators (e.g., he said he had a Loan Agreement relating to the M Fund, a Share Sale or Share Subscription Agreement relating to the D Fund, various phone notes and handwritten notes). His case is that he has withheld that material. The fact he made these submissions now, allowed ASIC to think that his 21 September 2023 letter was his position, and did not engage with the regulators openly is of substantial concern given the importance of the SMSF auditor’s role to the integrity of the SMSF system. ASIC’s closing submissions described Mr Islam’s approach towards the regulators as “a casual and problematic attitude”.[35] I accept that submission as it was demonstrable from Mr Islam’s evidence at the Tribunal.

    [34] T5-1.

    [35] See [64] ASIC’s Outline of Closing Submissions dated 18 November 2024.

15. More widely, Mr Islam’s evidence also reflected a lack of insight into the issues he was facing. He demonstrated that lack of insight by disavowing the 21 September 2023 letter which had acknowledged errors and stated that steps were being taken to resolve those issues. He submitted he has no deficiencies on his files. His understanding of his obligations as an auditor were also found to be wanting.[36] He did not recognise inconsistencies in the material on his audit file. In aggregate, all of the matters I have mentioned adversely impacted my assessment of Mr Islam.

    [36] As is stated below, this concerned his understanding of the auditing standards to maintain sufficient appropriate audit evidence.

16. If I had been called upon to decide the point, I would have concluded that consistent with the case law[37] Mr Islam is not a fit and proper person to be an approved SMSF auditor under the SIS Act. Giving evasive and inconsistent evidence, not providing the regulator with all the material on an audit file (as he says he has more material), not correcting submissions he made to the regulator he now says are wrong, showing ignorance on basic issues,[38] and his lack of insight into his failings, puts Mr Islam’s judgment, conduct, capability and integrity in question. I would have considered that there was a high likelihood of this conduct recurring due to the sheer number of SMSF audits Mr Islam apparently completes each year.[39] That aspect is concerning. However, I am not deciding this case based on this issue.

    [37] See [‎15] above.

    [38] As is further detailed below, Mr Islam demonstrated a lack of understanding about the meaning of “beneficially owned” in ASIC printouts.

    [39] See [‎5] above, up to 386 SMSF clients a year.

17. There is one aspect I have not given any weight to. On occasion during the hearing Mr Islam was difficult and showed a degree of aggressiveness with Ms Bentley for ASIC when she was questioning him. This was unfortunate. I have not given this point any weight, as I accept proceedings can be stressful for participants causing them to react in a manner they would not normally. Mr Islam had the added burden of representing himself. Mr Islam’s application for review[40] included allegations to the effect that ASIC had used artificial intelligence to write its decisions or that the relevant ASIC officer was not competent and/or did not understand the law relating to auditors. I reject those suggestions by Mr Islam as they are simply not correct from the face of the material before the Tribunal.

    [40] T1.

18. I raise both the occasional manner of Mr Islam’s evidence and the suggestions against the relevant ASIC officer in his application for review only for the purpose of commenting on the importance of the relationship between approved SMSF auditors, ASIC, and the ATO for the integrity of the SMSF system. This relationship should not be treated in an overly aggressive and adversarial fashion by any of those parties when interrelating. ASIC, the ATO, and approved SMSF auditors share obligations to protect the integrity of the superannuation system and working sensibly and openly together to that end is what Parliament intended.

    Whether Mr Islam failed to carry out or perform adequately and properly the duties of an approved SMSF auditor under the SIS Act, SIS Regulations or Australian law

    The provision of audit files to the ATO and the written declaration by Mr Islam

19. Full audit files of the D Fund, Y Fund, and M Fund were requested by the ATO on 27 October 2022 as part of its compliance review. Mr Islam provided material to the ATO on 2 November 2022.[41] At that time ASIC says Mr Islam made a declaration to the ATO to the effect that all information and documents he relied upon in his audits of the D Fund, Y Fund, and M Fund were provided to the ATO. [42] Further material was provided by Mr Islam to the ATO on or around 14 February 2023.[43] Taking the best case for Mr Islam, the impression given from drip feeding material to the ATO in this manner is that his audit files were not organised or that he does not understand his obligations.

    [41] The materials are in T15, T16 and T17. The index to the T Documents refers to these materials as being dated “13 June 2023” – this is the date the ATO sent those materials to ASIC.

    [42] T3-4, 61, referred to at [28] of ASIC’s Statement of Facts, Issues and Contentions and [55] of ASIC’s Outline of Closing Submissions dated 18 November 2024.

    [43] This is as set out in T10-35, T18 (cover letters) and T11, T12, T13, and T14 (material). The index to the T Documents refers to these materials as being dated “13 June 2023” – this is the date the ATO sent those materials to ASIC.

20. ASIC’s first contention is that these facts mean that Mr Islam’s declaration to the ATO on 2 November 2022 was false or a reasonably competent auditor would not have made it, as he had not provided all documents he relied upon. ASIC’s position was that this means he failed to carry out or perform adequately and properly the duties of an approved SMSF auditor under Australian law.[44] ASIC also relied upon this point in ASIC’s Outline of Closing Submissions to suggest this means Mr Islam is not fit and proper.

    [44] T2-1, 18, [28]; T6-3, 486, [39] to [40]. I note that this contention (if correct) could support a submission that Mr Islam was not a fit and proper person to be an approved SMSF auditor.

21. ASIC referred to the ATO’s Position Paper as evidence of Mr Islam’s declaration to the ATO. This reference is itself an assertion that a declaration was made – not the declaration itself.[45]

    [45] T3-4, 61, and [28] of ASIC’s Statement of Facts, Issues and Contentions.

22. In evidence before the Tribunal, Mr Islam acknowledged that a declaration may have been made, but he had no clear recollection of its content. The fact a declaration was made may be inferred from the title of T15-17 which seems to be a list of the audit material Mr Islam said he provided, as it is entitled “This is the Part of: Declaration of all information provided FORM.” At various times during this case, Mr Islam made different submissions about this aspect of ASIC’s case. I have summarised Mr Islam’s submissions and my conclusions below.

23. Mr Islam provided critical documents to the ATO: Mr Islam submitted[46] that all material provided to the ATO in November 2022 and February 2023 was considered in conducting his audits and the November 2022 materials comprised the critical audit documents. ASIC expressed scepticism[47] including (for example) because some of the materials provided in February 2023 for the M Fund appeared to be generated after Mr Islam’s audit was completed and because some of the material provided on 14 February 2023 included critical audit documents. I have concluded that this submission does not assist Mr Islam in the allegation made by ASIC, i.e., that the declaration he is said to have made to the ATO was false. At best this submission suggests Mr Islam misunderstood the nature of the declaration he is said to have been required to make.

    [46] T5-1, 112, [34]-[36].

    [47] ASIC’s Statement of Facts, Issues and Contentions at [31].

24. If a declaration was made, it was not false: Mr Islam explained in a letter dated 21 September 2023 that the materials provided on 2 November 2022 comprised his full audit files, that subsequently provided material on 14 February 2023 had been returned to the relevant accountants, and he had conversations and meetings (for example with the trustees of the relevant funds) that were undocumented and that he also relied upon.[48] Mr Islam also said he clearly told the ATO it could request any further information from him.[49]

    [48] T5-1, 112, [34]-[36].

    [49] Ibid [33] and [34].

25. Before the Tribunal, Mr Islam initially agreed that he was saying any declaration he may have made was not false. But Mr Islam then disavowed the substance of his 21 September 2023 letter[50] where the bulk of the above submissions were made. While he acknowledged his signature was on the 21 September 2023 letter, Mr Islam sought to distance himself from that letter and asserted it had been drafted by a lawyer. It was unclear from his responses whether Mr Islam had misread or misunderstood the submissions in this letter before it was signed by him and sent to ASIC. He acknowledged he had signed that letter and sent it to ASIC. Mr Islam’s evidence was unsatisfactory and inconsistent. He selected bits of the 21 September 2023 letter which he did not like and disavowed them. I cannot discern whether he continues to rely upon the submission that the declaration made to the ATO was not false.

    [50] The following paragraphs of the 21 September 2023 letter were amongst those said to not be Mr Islam’s position or incorrect:  4, 38, 39, 42, 49, 57, 58, 59, 65, 73, 79, 89, 102, 103, 113, 128.3, 129, 133, 137, 152, 153, 156, 165, 170, 171, 172, 200.

1. Merely file management deficiencies: Mr Islam gave a further explanation for some of the material he provided to the ATO being dated after his audit was completed. He said it was regenerated because material had been returned to the accountants, but that did not mean it was not considered at the time of the audit. If those submissions were accepted, Mr Islam would have breached auditing standards. Returning such material is contrary to ASA 230 which provides that “After the assembly of the final audit file has been completed, the auditor shall not delete or discard audit documentation of any nature before the end of its retention period.” Mr Islam’s submission was that ultimately, there were file management deficiencies which he had sought to rectify and that none of his clients were in loss because of any such deficiencies.[51] Another submission Mr Islam made was that the audit file material was impacted by the Covid-19 pandemic and the difficulties that created in calling for and collecting information, requiring professional judgment to be exercised.[52]

   [51] T5-1, 111, [32], and112, [40]-[46]; T7-1, 520, [4]; Applicant’s Submissions dated 27 September 2024 at page 2, [4].

   [52] T5-1, 111, [27].

2. At the hearing, Mr Islam disavowed the earlier submissions he had made, suggesting there were no deficiencies in his file management. He also disagreed that he had recreated or returned any of the material he provided the ATO. After questioning Mr Islam confirmed he is still relying on Covid-19 concessions he suggests were applicable. The concessions Mr Islam refers to was to suggest he had sufficient material on the audit files but that does not impact this aspect of the case (whether he made a false declaration to the ATO). I have concluded due to Mr Islam’s evidence and submissions before me that he no longer accepts there are file management deficiencies.

3. The declaration was not false because a hack or IT security issues caused a problem when accessing the audit files: Mr Islam made submissions to ASIC relating to a crash or hacking and consequential failure to back up for his files in August 2022.[53] Mr Islam confirmed this problem in his evidence before the Tribunal referring to it as being a failed back up of his files. It is unclear whether this is an explanation for the declaration ASIC says Mr Islam made to the ATO. That is, it is unclear whether Mr Islam is seeking to say that what was provided in November 2022 did comprise his complete audit files due to this issue so his declaration was true. He then managed to subsequently recover material; hence the February 2023 material. Mr Islam certainly did not make such a submission in his evidence before the Tribunal when questioned. I have concluded he does not assert this and there is no evidence of it.

   [53] T2-1, [23.5] sourced from T7-1 [7].

4. ASIC’s response to Mr Islam’s evidence was that even if any of Mr Islam’s explanations were accepted, he still has not met his obligations as an approved SMSF auditor in failing to properly document, assemble, and retain his audit files.[54] ASIC’s response is that the files provided by Mr Islam did not meet applicable auditing standards. This response is considered further below as it is not related to the claim that Mr Islam made a false declaration.

   [54] ASIC’s Statement of Facts, Issues and Contentions, [33].

5. ASIC has not produced the actual declaration in evidence. I cannot see the content of that declaration. I cannot see that Mr Islam made it. I cannot see how he made it (e.g., did he sign it or was it a box ticked on electronic provision of the audit material to the ATO?). Critically, I cannot see when he made it. In these circumstances, I do not find that a false declaration was made by Mr Islam. This means I have not taken this matter into account when determining if Mr Islam failed to carry out or perform adequately and properly the duties of an approved SMSF auditor under the SIS Act, SIS Regulations or Australian law.

   The D Fund

6. Below I detail each of ASIC’s concerns in relation to the three example audit files, and Mr Islam’s responses, and I provide my findings on these issues. At the hearing ASIC properly submitted that it was not saying any of the three example audit files involved non-compliant SMSFs. The Tribunal agrees. This case is about Mr Islam’s audit processes and nothing more. When considering each audit file, I have taken the best case for Mr Islam – that is, that the material he provided the ATO on 2 November 2022 and 14 February 2023 comprised his audit files (despite there being a case for saying that only the 2 November 2022 material comprised his audit files).

7. In relation to the D Fund, ASIC submitted[55] that Mr Islam failed to carry out or perform adequately and properly the duties of an auditor under the SIS Act and the SIS Regulations as he failed to meet auditing standards. This is because he failed to obtain sufficient audit evidence to support his conclusions or failed to adequately document his conclusions for the D Fund that:

   a.Signed accounts/financial statements were retained by the trustees.

   b.The unlisted shares the D Fund invested in (B Finance Pty Ltd and B Invest Pty Ltd together referred to as the B companies) were (i) reported at market value (instead relying upon valuation notes signed by the sole director of those companies) (ii) not acquired from related parties, and (iii) not in-house assets.

   c.The unlisted shares were fully paid. There appeared to be an instalment arrangement for the payment of the subscription price for the shares in the B companies.

   d.The D Fund’s investments were at arm’s length, and it did not have a prohibited borrowing.

   e.A particular withdrawal of $6,500 was not an in-house asset – that is, not a loan to a related party.

   [55] Unless otherwise stated, all references are to ASIC’s Statement of Facts, Issues and Contentions and/or to ASIC’s 22 March 2024 decision which confirmed the disqualification decision and/or to ASIC’s Outline of Closing Submissions dated 18 November 2024.

8. ASIC’s case is that the audit documentation on each of the audit files was not “sufficient to enable an experienced auditor, having no previous connection with the audit to understand … [t]he results of the audit procedures performed, and the audit evidence obtained; and [s]ignificant matters arising during the audit, the conclusions reached … and significant professional judgements made in reaching those conclusions” per GS 009 and ASA 230. ASIC’s case is that Mr Islam is required to comply with auditing standards by virtue of section 128F of the SIS Act, and by failing to do so, he falls within paragraph 130F(2)(a) of the SIS Act.

9. Mr Islam responded[56] by making general and specific submissions. Those submissions and my findings follow.

   [56] Unless otherwise stated, all references to Mr Islam’s assertions are to Mr Islam’s Submissions dated 27 September 2024,10 October 2024, his evidence at the hearing and his closing submissions dated 6 November 2024.

10. Firstly, Mr Islam said he relies on his professional judgment as an auditor and his more than 35 years’ experience as an accountant. His view is that the audit files he provided were sufficient evidence and he met auditing standards, and carried out or performed his duties as an auditor adequately and properly. He also said “[D Fund] trustees provided more than sufficient audit evidence as per Auditing Standard (ASA500, CS009, CPA Australia, SMSF manual, auditor … CPD Seminars, auditor problem solving capacity, audit & Accounting experience) (sic)”. Mr Islam suggested that ASIC had not drawn a proper connection between the disputed points and the available audit evidence as evidenced by the share certificates and the ASIC website view of the unlisted companies the D Fund invested in. He also stated that the D Fund trustees provided “more than one [piece of] audit evidence for each disputed point, which is more than sufficient as audit evidence” as “one audit evidence is sufficient”.

11. Mr Islam’s CPD compliance is not relevant to the issue at hand. He must meet all of the requirements in section 128F of the SIS Act, not just the CPD requirements. While it is true that professional judgment is an important factor for an auditor, the issue is whether Mr Islam has complied with auditing standards or not, an issue that arises for all auditors, no matter their level of experience. Years of experience are not an answer to whether Mr Islam failed to carry out or perform adequately and properly the duties of an approved SMSF auditor under the SIS Act, SIS Regulations or Australian law. Auditors with many years of auditing experience can breach auditing standards.

12. Signed financial statements: Mr Islam confirmed that the Financial Statements were signed correctly by the trustees of the D Fund. In his evidence before the Tribunal, Mr Islam initially said the signed financial statements were on the file and then clarified, asserting that signed resolutions to sign the financial statements was audit evidence. It was, he said, “very simple”. I do not accept this evidence. What would be a simple way to meet this requirement is ensuring that signed financial statements are on the audit file.

13. Mr Islam previously submitted that the failure to have a signed copy of the financial statements on the audit file could be due to the signed page being missed when uploading to the audit file. Mr Islam did not repeat this reasoning before the Tribunal. I accept this could have been a result of a scanning error. However, before the Tribunal Mr Islam did not continue to make this submission and instead doubled down on his assertion that there was no deficiency on the D Fund audit file. Were this failure due to a scanning error, it alone would not have substantiated the disqualification decision. Were that this the only failing on the D Fund audit file, this failure would, in my view, fall within the comments noted above in Davies v Australian Securities Commission and Companies Auditors and Liquidators Disciplinary Board [1995] FCA 1496, at [96].[57] However, it was not the only failure. I accept ASIC’s submission that Mr Islam made repeated errors.[58]

    [57] See [‎16] above.

    [58] ASIC’s Outline of Closing Submissions dated 18 November 2024 [4(a)].

14. For completeness I note that the audit file material for the D Fund as provided in November 2022 and February 2023 contains only the cover page and signature page of the Trust Deed.[59] The audit file should contain the entire Trust Deed so that an experienced auditor picking up the file can discern if the D Fund is a SMSF as defined in the SIS Act.[60] GS 009 provides that for new engagements, an auditor must seek independent verification of trustee status and cannot rely on trustee representation letters; the Trust Deed assists with that.[61] I assume the full Trust Deed is on file in an earlier year. I further note that the only discernible existence of an investment strategy for the D Fund[62] is inferentially at T15-5 where in a Trustee minute reviewing performance with the strategy, the investment return of “approximately 0” was considered “acceptable”. I assume an investment strategy was contained in an earlier audit file. Similarly, there is nothing that looks like an audit plan on the file. ASA 300 requires an audit plan. I assume the audit checklist is being treated as an audit plan[63] on each of the audit files for the D Fund, Y Fund and M Fund.

    [59] T15-13.

    [60] Assessing of whether the D Fund meets the definition of an SMSF under s 17A of the SIS Act requires a review of the Trust Deed.

    [61] GS 009, [320].

    [62] An Investment Strategy is required under reg 4.09 of the SIS Regulations.

    [63] The audit checklists are at T-15-20 (D Fund), T17-01 (Y Fund) and T16-17 (M Fund) although Mr Islam also advised the Tribunal that the checklist was “in his head”.

15. Market value of B companies and arm’s length investments by the D Fund: Mr Islam said the unlisted shares in the B companies were reported at market value in valuation notes issued by the sole director.[64] Because the unlisted company had more than 70 shareholders, the D Fund acquired only 3 shares, the price per share was the “same for all over 70 Investor[s]”, he made a reconciliation with bank statements, and this is an arm’s length price. Because of the nature of the unlisted company (including it being unrealised) there was very little market data to rely upon “we all agree ... that [the] trustees can provide [the] most reasonable market valuation for SMSF asset”. The directors of the B companies provided the valuation notes.

    [64] For B Invest First Pty Ltd this is at T11-9 for B Invest & Finance Pty Ltd this is at T11-4. This material was provided in February 2023, not November 2022 when full audit files were requested by the ATO.

16. I find that an agreement as to market value does not equate to market value, just as a statement that an investment was at arm’s length does not evidence that the investment was at arm’s length. Were this submission to be correct, audits would be very easy indeed – assertions from the trustees or managers would be sufficient for everything. Mr Islam was required to do more to ensure the D Fund complied with regulation 8.02B of the SIS Regulations.[65] He did not note how he came to the view the valuation given to the trustees was market value. There are no notes on the D Fund audit file where Mr Islam documents any conversations with anyone to demonstrate how “we all agree” and what his reasoning was when accepting the valuation notes.

    [65] ‘Compliance audit’, Australian Taxation Office (Web page, 15 December 2022) < Compliance audit | Australian Taxation Office>. The ATO gives clear guidance of its view, “a statement in a trustee representation letter or a trustee minute confirming asset valuations is not sufficient audit evidence”.

17. If Mr Islam is relying upon the trustee representation letter as support for market value, he ought not to be. A trustee representation as to market value such as is set out in the trustee representation letter at T15-3 paragraph 7 is not sufficient. Not only does the ATO say as much,[66] so do the auditing standards. ASA 580 provides that a trustee representation letter does not provide sufficient appropriate audit evidence on its own. I recognise that unlisted shares may be difficult to value, but there is nothing on the file setting that out or setting out Mr Islam’s thinking, whether he considered the assets of the B companies or future returns from the shares of the B companies, or in fact any reasoning. An experienced auditor could not pick up Mr Islam’s file and follow it. Mr Islam did not apply a critical mindset as is required of an approved SMSF auditor. He breached ASA 580, GS 009 and ASA 230.

    [66] Ibid. “A statement in the trustee representation letter or a trustee minute confirming asset valuations is not sufficient audit evidence”.

18. Fully paid shares: Ms Bentley put to Mr Islam that the share certificates for the B companies demonstrated the shares were fully paid,[67] while he was saying the shares were paid by instalments and they were not fully paid. Mr Islam said he had noticed this discrepancy, checked a bank statement and spoke to the trustees taking a note. He acknowledged this was not on the file but felt this was not required as only one piece of evidence was needed. When the bank statement[68] he relied upon as evidence was put to Mr Islam, he accepted there was nothing demonstrating the reconciliation he made. For example, the transfers he labelled on the bank statement at issue as being instalment payments for shares in the B companies showed the recipient of D Fund money as not being either of the B companies, but individuals. He explained these were payments to the trustees of the D Fund.[69] Mr Islam said the payments were on paid to the B companies by the trustees in return for shares being issued to the D Fund.

    [67] T15-1.

    [68] T11-2, 1230.

    [69] One payment is labelled as being to “[name of trustee] Super” which might suggest it was paid to another Superannuation Fund, but I assume that is not the case.

19. There is nothing on the audit file showing that the individuals that received the funds from the D Fund bank account directed those funds to the B companies. There are no bank statements from them showing the money going out for example. There is nothing from either B company showing receipt of the funds. While share certificates are on the file, they demonstrate an amount paid for the shares that cannot be reconciled with the D Fund’s available funds, and the share certificates are dated differently to the transfers on the D Fund bank statements.[70] They cannot be easily reconciled. It is hard to understand why the D Fund did not transfer funds directly to each of the B companies and subscribed for the shares directly in the names of its trustees. There is no agreement between the D Fund, any of the B companies on the file explaining the arrangement. A question should have been asked about all of this and the answer recorded. I accept ASIC’s submissions to that effect.[71] Mr Islam’s failure to have this material on the audit file and to document his conversations and reasoning, and his failure to maintain complete documentation breaches GS 009 and ASA 230.

    [70] For example, T15-1 contains two share certificates dated 21 August 2018 and one dated 15 July 2019 (all noted as fully paid), while the bank statement at T11-2 shows payments made to individuals (which Mr Islam asserts were on paid to the B companies) on 9, 10, and 22 October 2018.

    [71] ASIC’s Outline of Closing Submissions dated 18 November 2024, [10].

20. Ms Bentley asked Mr Islam about a contract describing the instalment payment arrangement Mr Islam said existed for the shares in the B companies, perhaps explaining the date differential between the share certificates and the bank statements. Mr Islam said he had that document – a Share Sale Agreement or potentially a Share Subscription Agreement – which had not been provided to either regulator or the Tribunal.

21. I do not accept Mr Islam’s evidence. I accept that Mr Islam may have spoken to at least one of the trustees, but I do not accept there is a phone note of any conversation with the trustees. Further, I do not accept that the bank statement at issue[72] is sufficient evidence to substantiate Mr Islam’s conclusions about the payment for the shares in the B companies, and I do not accept that Mr Islam has a Share Sale Agreement or Share Subscription Agreement. It defies common sense that such an Agreement would not, long before now, have been provided to ASIC or the ATO or the Tribunal by Mr Islam if he had it. Even if he did have it, it was not on the audit file and there was insufficient appropriate evidence. This is a failure to meet GS 009 and ASA 230.

    [72] T11-2, 1230.

22. Ensuring the assets were owned by the D Fund: In cross-examination by Ms Bentley, Mr Islam revealed his ignorance of what “beneficially held” meant on ASIC company printouts showing the shareholding of each of the B companies.[73] On the relevant ASIC printouts Mr Islam circled a name of a person that was one of the trustees of the D Fund on the ASIC printout for one B company and circled the names of persons that were both of the trustees of the D Fund on the ASIC printout for the other B company.[74] In evidence Mr Islam said that by saying yes to the question of whether the shares were “beneficially held” these individuals did not hold the shares for themselves but held shares in the B companies for the D Fund. It is the reverse, and by saying yes to that question, the persons Mr Islam circled were saying they held the shares for themselves. I accept ASIC’s submission that this aspect is concerning and an SMSF auditor should be alert to such issues.[75]

    [73] T11-8 and T11-10.

    [74] There was no explanation from Mr Islam on the audit file explaining why only one trustee was paid funds by the D Fund to be on paid for shares in one B company, while both trustees were paid funds to be on paid for the other B company. There were no resolutions from the trustees prior to the investment in the B companies.

    [75] ASIC’s Outline of Closing Submissions dated 18 November 2024, [12] and [13].

1. I acknowledge that the share certificates show the individuals listed on the ASIC printout “ATF” the D Fund[76] - presumably as trustee for. This means there is a discrepancy between the ASIC printouts and the share certificates. As I have also previously noted the dates are not consistent between the pieces of evidence Mr Islam relies upon (the bank statements and the share certificates). I have concluded that Mr Islam did not notice the discrepancy between the ASIC printouts and the share certificates due to his lack of understanding of what “beneficially held” on the ASIC printout meant. The fact that the shares in the B companies held by the parties Mr Islam circled was stated to be for themselves should have led to inquiry by Mr Islam, further evidence should have been sought, and the ASIC record corrected to the extent it needed to be. Mr Islam seems to have relied totally on trustee representations, he did not question those representations when ASIC material contradicted them, when the dates in the bank statements and share certificates did not align, and he did not critically assess the evidence he had. This is a failure to meet ASA 230, ASA 580 and ASA 200.

   [76] T15-1.

2. In-house assets and not acquired from related parties: Mr Islam said the D Fund Financial Report and trial balance for 2020 are both audit evidence and they do not record a related party loan or financial assistance to “[Fund] member[s] or any relatives”. Mr Islam’s approach to the in-house assets issue throughout this case was to focus on whether there were loans. That is not the test, as the SIS Regulations and SIS Act demonstrate.[77] In any event, the point being made seemed to have been missed by Mr Islam. I am not deciding whether that test is breached or not - that is not the point. The question was whether Mr Islam had recorded anywhere on the audit file upon what basis he had reached conclusions. All I can see on the audit file to this point are assertions in the trustee representation letter at T15-3 and in the trustee declaration at T15-4. Consistent with this seemingly being the audit evidence Mr Islam relied upon, Mr Islam asserted that the “Trustee declaration” “Trustee Representation letter” “Trustee Special Declaration” are also audit evidence, as are bank statements.

   [77] Section 71 of the SIS Act and Division 13.3A of the SIS Regulations confirm that financial assistance is merely one way the in-house assets test applies.

3. While it is true that trustee representation letters and trustee minutes are audit evidence, ASA 580 warns auditors that they are not sufficient appropriate evidence on their own. Mr Islam says he had phone conversations with the trustees and the director of the unlisted company which also led to assurance. There is nothing on the audit file. In his evidence before the Tribunal Mr Islam said the phone conversations were noted by him in writing. At one stage during the hearing, Mr Islam also said phone notes were substantially recorded in notations on various documents provided to the ATO or ASIC. It is hard to see what he is referring to – any such notations are mere assertion of facts that are not on the documents themselves and appear to have been made in response to the regulators, not at the time.[78] Then Mr Islam said that phone notes were only taken of the critical issues, not every call. Then Mr Islam commented that the phone notes were personal and may not be able to be understood by another person. There was also a suggestion that new software adopted in Mr Islam’s practice required phone notes but that appeared to be after the audit year in question for the D Fund. Whatever the position, it is hard to understand why Mr Islam did not provide phone notes to ASIC and the ATO of the conversations he relied upon if he had such material. Most importantly, this material is not on his audit file. This breaches ASA 230.

   [78] See for instance the notations on the ASIC printout at T11-10.

4. Mr Islam concluded as follows: “On the basis of the above, more than sufficient audit evidence… and phone conversations with the trustee and unlisted company director – I have assurance that th[e] draws and returns for new Investments (as per Auditing Standard, phone conversations, also audit evidence confirmation allowed) [there are] no loans to members, trustees or relatives, it has complied [with] the SIS  [A]ct and regulations. If anyone still thin[ks] [it is a short term] related party loan, Covid-19 Relief applied, so all 100% correct.” The D Fund had “no related party investment and full arm’s length investment[s]” with its only asset being “unlisted shares” and the trustees are not directors “so asset NOT acquired from relate[d] parties” “paid from Fund Bank account [in the] 2019 [and] 2020 Income year[s] & two Individual Trustees, very simple background” and there is an exclusion applies in any event.

5. I do not accept those submissions including for the reasons I have previously specified. There is no supporting material on the audit file and Mr Islam’s reasoning is not on the audit file as required by applicable auditing standards. Mr Islam did not apply the required scepticism to the trustee representation letters where the circumstances highlighted inconsistencies between those letters and other material. In terms of the Covid-19 relief Mr Islam refers to, what has been put to the Tribunal by Mr Islam at the close of the hearing was an ATO website page entitled “Support for self-managed super funds”.[79] That document does not state anywhere that the pandemic meant there was no need for an approved SMSF auditor to ensure supporting material is retained on the audit file, no need to meet auditing standards, and no need to ensure the auditor’s reasoning is documented on the file.

   [79] ‘Support for self-managed super funds’, Australian Taxation Office (Webpage, 9 August 2022) <Support for self-managed super funds | Australian Taxation Office>.

6. Further, Mr Islam does not note the ATO’s guidance in the “Addendum for financial years impacted by Covid-19”.[80] That document provides some concessions during the pandemic such as there being no need to report in-house asset contraventions in the 2020, 2021, 2022 years, but that document also records other requirements – e.g., there must be a plan to rectify any in-house asset problem. Nowhere does that document state that approved SMSF auditors do not need to document their reasoning or meet auditing standards.

   [80] ‘Addendum for financial years impacted by COVID-19’, Australian Taxation Office (Web page, 19 January 2023) <Addendum for financial years impacted by COVID-19 | Australian Taxation Office>.

7. In-house assets $6,500 - In relation to the $6,500 at issue that ASIC was concerned could be a loan, Mr Islam said this was “deposited for new shares” in the B companies and the money was returned by the B companies. He added even if it was a borrowing, Covid-19 relief still applies, and in addition “[the] trustee made special declaration that it [is] not an in-house asset”.[81] I do not need to repeat the analysis above. There is nothing on the audit file that demonstrates where this payment went to on 29 November 2019.[82] There is no evidence suggesting this was a subscription for shares. There is no Agreement on the audit file between the D Fund and either of the B companies demonstrating why a payment was received and held for months without shares being issued. ASIC pointed out that it took approximately 7 months for the $6,500 to be refunded to the D Fund.[83] No income or return was apparently received on those funds that were held for 7 months and it is not clear as to the basis on which the funds were held. There is nothing on the audit file demonstrating that Mr Islam asked questions or what his reasoning was. In terms of Covid-19 relief, there is nothing relieving Mr Islam from satisfying the auditing standards as referred to in section 128F of the SIS Act.

   [81] This declaration is at T11-7 and is dated 30 June 2020.

   [82] T15-9 bank statement only shows the money leaving the D Fund’s account to “investment”. T15-10 bank statement then shows it was returned 7 months later on 26 June 2020 “[B company] Return”.

   [83] ASIC’s Outline of Closing Submissions dated 18 November 2024, [14].

8. I find that the audit documentation on the D Fund file was not sufficient to enable an experienced auditor with no previous connection to the audit to understand the audit procedures performed, the significant issues arising during the audit, the audit evidence obtained, the conclusions reached, and the professional judgments made in reaching those conclusions. Mr Islam has not identified inconsistencies in the documentation, and he has not sought to resolve those. He has not documented conversations with the trustees, or if he did, they are not on the file. He has not satisfied auditing standards – particularly ASA 230, ASA 580 and GS 009.

   The Y Fund

9. In relation to the Y Fund,[84] ASIC submitted that Mr Islam failed to carry out or perform adequately and properly the duties of an auditor under the SIS Act and the SIS Regulations as he failed to meet auditing standards. This is because he failed to obtain sufficient audit evidence to support his conclusions or failed to adequately document his conclusions for the Y Fund that:

   a.The sole investment by the Y Fund in the unlisted C Unit Trust was at arm’s length, and the investment was reported at market value in the 2020 financial statements.

   b.The Y Fund did not hold in-house assets greater than 5% of its total assets.

   [84] Y Investments SMSF Pty Ltd is the trustee of the Y Fund (T17-8). I note that one of the directors of the trustee has the same name as Mr Islam and I assume this is a different person.

10. ASIC’s case is that because of those failures, section 130F of the SIS Act is applicable for the reasons set out above at paragraph ‎47.

11. Mr Islam responded making general and specific submissions. Those submissions and my findings follow. Firstly, Mr Islam again said he relies on his professional judgment and experience. Mr Islam maintained that the audit files he provided were sufficient evidence and he met auditing standards, performing his duties as an auditor adequately and properly. I have already dealt with this submission above. This is not an answer to the issues raised by ASIC.

12. Market value: Mr Islam submits that the investment by the Y Fund in units in the C Unit Trust was the Y Fund’s only asset. He submits that the valuation notes provided by the trustee of the C Unit Trust [85] were provided during the Covid-19 pandemic and because of “ATO valuation relief”[86] the notes are acceptable evidence of market value. Mr Islam relied upon the Kingston Cotton Mills case[87] for the proposition that an auditor is merely a “watchdog” and not a “bloodhound” – so he maintained he was not required to investigate further. He also said that when considering the unit trust’s assets (vacant land), valuation is complex while that land was purchased for development, “it would take at least another 50 years to have PSP or a development permit, so [the unit trust is] waiting for the Sale of the Land [to] make some capital gain, if [the] market changes”. Mr Islam stated and reiterated in his evidence before the Tribunal that he also relied upon phone conversations with the trustee, the accountant and the “Unlisted Unit Trust office holder” all of whom supported the view that the market value of the investment is the same as the unit certificate price. Mr Islam said that these phone conversations are also audit evidence. Mr Islam also asserted that “Covid-19 valuation relief” means “[an] auditor can consider any reasonable valuation from [the] trustee.” Mr Islam did not accept Ms Bentley’s suggestion that there was no such guidance from the ATO, and he was required to obtain more evidence. Mr Islam doubled down on these submissions in his closing submissions stating “Expert measures that if any of the above[88] Impact during the Covid-19 - auditor should report to ATO and mention for Covid-19 relief. However for Valuation of assets – Experts measured that if there are any difficulties to collect the Valuation – due to Covid-19 any reasonable valuation is acceptable, on the basis previous or current valuation or situation.”[89] He repeatedly referred to “the Covid-19 impact limitation”.

    [85] T14-5.

    [86] ‘Support for self-managed super funds’, Australian Taxation Office (Web page, 9 August 2022) <Support for self-managed super funds | Australian Taxation Office>.

    [87] Re Kingston Cotton Mill Company (No.2) 1896 2 Ch 279. In a slightly later case Irish Woollen Co Ltd v Tyson (1900) Acct LR 13 the Irish Court of Appeal noted: “Applying this instance of the dogs to the present case, was not the watchdog bound to bark? And if, when sniffing round, you hit upon a trail of something wrong, surely you must follow it up, and there is just as much obligation on the auditor who is bound to keep his eyes open, and his nose, too.”

    [88] Referring to his assertions of ATO Covid-19 relief measures, residency relief, in-house asset relief and repayment relief.

    [89] Mr Islam’s closing submissions dated 6 November 2024, 1.

13. Dealing first with the reference to the Kingston Cotton Mills case, standards for auditors have moved since 1896. For example, in Pacific Acceptance Corporation Ltd v Forsyth (1970) 92 WN (NSW) 29 at 74 when considering the role of auditors, Justice Moffitt held:

    ‘Reasonable skill and care’ calls for changed standards to meet changed conditions or changed understanding of dangers, and in this sense standards are more exacting today than in 1896 (Kingston Cotton Mill case).

14. Justice Moffitt also noted that in audit testing procedures the auditor's job is to check material matters from available documents and the auditor has not done their job if they merely seek the assurance of management as to the checks that they have made, or to their views on the effect of documents. Material irregularities are required to be noted and the procedures undertaken recorded. Unfortunately, Mr Islam, in my assessment, has not met those standards.

15. Secondly, there is no ATO valuation relief that is applicable that means an auditor can consider any reasonable valuation from a trustee. The ATO guidance[90] states:

    There is no change to the reporting requirements in relation to regulation 8.02B of the SISR. Where you are not provided with evidence from the trustees that the fund assets have been reported in the financial statements at market value and the contravention meets the reporting criteria, an ACR should be lodged as per normal requirements. We do however understand that trustees may have experienced difficulties due to the impacts of Covid-19 in obtaining objective evidence to support the valuation of assets as per the requirement in the SMSF valuation guidelines. If this is the case you should provide reasons in the ACR as to why the trustee was unable to obtain the appropriate evidence and if we are satisfied this was due to the impacts of Covid-19, the contravention will not result in any penalties.

    [90]‘Addendum for financial years impacted by COVID-19’, Australian Taxation Office (Web page, 19 January 2023) < Addendum for financial years impacted by COVID-19 | Australian Taxation Office>. I note Mr Islam provided the Tribunal with a copied page from a textbook (at what he labelled AE 75 on his submissions dated 10 October 2024). The summary he marked under the heading “Temporary COVID-19 relief for SMSFs” also does not support Mr Islam – it is about rental relief, not the market value of assets. In any event, a textbook is not law, nor is it guidance from a regulator. I also note ASIC’s Outline of Closing Submissions dated 18 November 2024 at [46] suggests this textbook postdates the audit year in any event.

16. Mr Islam has not provided any evidence on the audit file as to why the pandemic affected the Y Fund’s ability to obtain a market valuation. When questioned by Ms Bentley, Mr Islam said that he spoke to the directors of the trustee, they had not been able to obtain a market valuation because of the pandemic, and he noted that call. I do not accept that evidence. I have noted above the various submissions Mr Islam made about phone calls. Whatever the position, there is nothing on the Y Fund audit file demonstrating how Mr Islam reached his conclusions. In addition, Mr Islam did not lodge an auditor contravention report (or ACR). The ATO material simply does not say what Mr Islam submitted and Mr Islam’s submission is rejected.

17. In relation to the phone conversations Mr Islam said he had, I will not repeat the analysis above. Mr Islam was required by the auditing standards to document those conversations. His evidence before the Tribunal was inconsistent as to whether he did that, but what is patently clear is there is nothing on the audit file for the Y Fund. This breaches ASA 230 and ASA 580. The issues Mr Islam raises about the difficulty of valuing the unit trust investment based on the underlying assets are not on the Y Fund audit file, and there is nothing setting out his reasoning.

18. Arm’s length and in-house assets: Mr Islam said the Y Fund’s investment in the C Unit Trust was at arm’s length as the Y Fund acquired the units at the same price as other investors in the unit trust on a commercial basis. The unit certificate, trustee declaration in the audit year, and the trustee representation letter are all audit evidence of this. Mr Islam says the trustee confirmed that the Y Fund did not have in-house assets “no more or less than 5% In-house asset of fund total asset[s] in this income year, if any loan then we can talk about 5% more or less”. “The Trustees are not directors of the unlisted unit trust” the Y Fund invested in, so the investment is not an in-house asset. The unit trust asset was “held by 15 [i]nvestors, so fund as tenants in common”. The unit trust is “un-geared” and the Y Fund’s financial statements evidence “no loan at all”. There is no “loan or asset lease to any member or their relative”. The material referred to is all audit evidence supporting those conclusions, and Mr Islam asserts this is in accordance with auditing standards.

19. In his evidence before the Tribunal, Mr Islam accepted there was no documentary evidence on the audit file setting out his reasoning or the steps he had undertaken. But he felt this was unnecessary.

20. I do not accept Mr Islam’s submissions. Some of his assertions did not make sense (such as unit holders being “tenants in common”). Mr Islam is required to document phone conversations that he has relied upon in his audit (e.g., those he had with the directors of the trustee), and those should be on the file. He is required to document his reasoning on why he accepted representations from the trustee, demonstrating what he has checked to ensure those representations were correct. He needed to maintain an audit file that an experienced auditor can pick up and understand. In my assessment he has not done so. While the Y Fund may well have no in-house assets and its investments may well be at arm’s length, that is not what I am tasked with deciding. The issue is whether Mr Islam’s file contained sufficient appropriate evidence as to why he concluded this was so. In my assessment, it does not. He has breached ASA 230 and GS 009.

    M Fund

21. ASIC says that Mr Islam failed to carry out or perform adequately and properly the duties of an auditor under the SIS Act and the SIS Regulations in relation to the M Fund as he failed to meet auditing standards. This is because he failed to obtain sufficient audit evidence or to adequately document conclusions that:

    a.Three land assets were owned by the M Fund. ASIC was concerned that a different entity in the M group owned some assets as the contractual evidence provided by Mr Islam was inconsistent.

    b.The lease of a property and the investment by the M Fund in the M Unit Trust were not in-house assets, and whether an exclusion applied.

    c.The income generated from the M Fund’s investments was at arm’s length.

    d.The trustee did not give an impermissible charge over the assets of the M Fund.

    e.The market value of the properties held by the M Fund and the investment in the M Unit Trust.

    f.The trustee of the M Fund had an investment strategy that was formulated, reviewed and given effect to. ASIC noted that the investment strategy that was on file was dated at the end of June 2021, the last day of the relevant income year, and was not complied with in any event.

1. ASIC’s case is that because of those failures, section 130F of the SIS Act is applicable for the reasons set out above at paragraph ‎47. Mr Islam responded by making general and specific submissions. Those submissions and my findings follow.

2. The ownership of three properties: Mr Islam said that the M Fund had previous auditors and he had historical data consistent with ASA 500 demonstrating ownership of units in the M Unit Trust. In terms of the land assets, these too were acquired prior to Mr Islam becoming the auditor for the M Fund and Mr Islam stated that he had sufficient evidence from those prior audits.

3. Ms Bentley asked Mr Islam about the first of those land assets (the O Road land) referring to the following documents:

   a.Title documents at T13-6 and T13-7 which referred to the trustees of other trusts (MO1 Trust (lot 8 of the O Road land) and MO2 Trust (lot 7 of the O Road land)) as the owner of those respective assets and not the M Fund trustee. It should be noted that the trustee of the MO1 Trust and the MO2 Trust was the same entity.

   b.The Trust Deed for MO1 Trust at T13-16 and the Trust Deed for the MO2 Trust at T13-20 indicated the beneficiary of each trust was the M Fund. Mr Islam referred to the trusts as bare trusts, and from the face of the MO1 and MO2 Trust Deeds I accept that evidence.

   c.The agreement for sale and purchase at T13-8 which refers to Lots 7 and 8 of the O Road land and the purchaser of both lots is referred to as the trustee of the MO1 Trust.

4. Ms Bentley pointed out to Mr Islam that the agreement for sale and purchase and the title documents were inconsistent. The MO1 Trust held lot 8 of the O Road land (as was the position according to the title documents), not both lots 7 and 8 of the O Road land (as was the position according to the agreement for sale and purchase). Mr Islam did not accept the documents were contradictory. I find those documents are contradictory.

5. However, there is a question of whether Mr Islam was entitled to rely upon the previous auditor as these documents are dated around 2015, and Mr Islam did not become the auditor of the M Fund until 2018. I assume these documents are from that prior audit file.

6. ASA 500 provides at paragraph A5:

   Audit evidence is necessary to support the auditor’s opinion and report. It is cumulative in nature and is primarily obtained from audit procedures performed during the course of the audit. It may, however, also include information obtained from other sources such as previous audits (provided the auditor has evaluated whether such information remains relevant and reliable as audit evidence for the current audit).

7. ASA 315 provides at paragraph 16:

   When the auditor intends to use information obtained from the auditor’s previous experience with the entity and from audit procedures performed in previous audits, the auditor shall evaluate whether such information remains relevant and reliable as audit evidence for the current audit.

8. There is no obvious evidence that Mr Islam assessed the reliability of the prior audit documents as he was required to, and I find Mr Islam did not notice the inconsistency referred to by Ms Bentley. However, on balance, I find that he was entitled to rely on (particularly) the title documents and the trust deeds for the MO1 Trust and MO2 Trust to demonstrate ownership of the land assets, including the O Road land. These were documents obtained by the prior auditor. The title documents record ownership. I do not find this was a failure on Mr Islam’s part and I do not accept ASIC’s submissions otherwise.[91]

   [91] ASIC’s Outline of Closing Submissions dated 18 November 2024, [24].

9. In-house assets and arm’s length investments: The M Fund invested in certain land assets and the M Unit Trust. Mr Islam submitted that the M Unit Trust was “un-geared” and the financial statements showed that there are no loans. Mr Islam said that this means that the 5% in-house assets rule did not apply. He also asserted that the M Fund trustee provided sufficient audit evidence to demonstrate the M Fund’s investments were at arm’s length and the trustee had not given a charge over any of the Merino Super Fund assets. That evidence included the trustee representation letter, and representations from the previous auditor.

10. As noted above[92] Mr Islam’s focus on whether there are loans is misplaced as that is not an answer to whether there are in-house assets. The in-house asset test covers an array of matters, not merely loans. It is not correct that if there are no loans the in-house assets test does not apply. The T documents includes a letter from DBA Lawyers to the ATO dated 14 February 2014 (T13-25). That letter is on behalf of the trustees of the M Fund and is outside the period in question for Mr Islam’s audit. It demonstrates that rectification was required as these rules were problematic for the M Fund in the past. Mr Islam should have been on notice to check these issues. I also note that Mr Islam asserted the M Fund had a limited recourse borrowing arrangement which is an exception, and this means its investment in the M Unit Trust was not an in-house asset. I accept ASIC’s submission that the existence of any limited recourse borrowing arrangement has no bearing on whether the investment in the M Unit Trust met the in-house asset definition.[93]

    [92] See [‎63] above.

    [93] ASIC’s Outline of Closing Submissions dated 18 November 2024, [22].

11. Once again, the issue at hand whether Mr Islam has documented his reasoning for the 2021 year on the audit file. Once again, in my assessment, he has not. There is nothing on the M Fund audit file demonstrating Mr Islam’s reasoning or that he even considered these issues. It is not good enough for an auditor to appear at the Tribunal and seek to only then give their reasoning. I do not accept Mr Islam’s submissions in any event. The auditing standards require more on the audit file.

12. Ms Bentley also questioned Mr Islam’s reasoning in relation to the return derived by the M Unit Trust from its underlying assets (for instance rental returns from its properties). Mr Islam submitted that he was not auditing the M Unit Trust but the M Fund and, in any event, he has sufficient evidence as “all was OK”. Mr Islam has missed the point. The M Unit Trust is a related entity of the M Fund. I accept Ms Bentley’s submission that greater scrutiny was needed to ensure the investment was at arm’s length and did not contravene the in-house assets rule. Mr Islam has nothing on the audit file demonstrating that he considered those issues. Mr Islam also maintained that material was on the prior audit file and he was entitled to rely on prior conclusions. As noted above,[94] auditing standards require Mr Islam to have assessed the reliability of that earlier audit evidence. There is no evidence on the audit file that he did so. I also accept ASIC’s submissions that Mr Islam did not obtain any evidence about the ownership and use of the M Fund’s properties. He was required to do so.[95]

    [94] See [‎88]-[‎89] above.

    [95] ASIC’s Outline of Closing Submissions dated 18 November 2024, [25].

13. Investment strategy: Mr Islam said that the Trustees’ Investment Strategy contained percentages “for benchmark and targeted range … depend[s] on prediction … this is the [T]rustee[’s] business, as long as the Trustees make the declaration that Investment Strategy [is] review[ed] [on a] regular basis, [the] auditor can concludes (sic) the audit and auditor correct.” In relation to the Investment Strategy “[The] auditor’s duty [is] to check if the trustee reviewed the Investment [S]trategy or not, on the Trustee[‘]s Investment strategy annual declaration (sic), and trustee declaration and trustee representation letter and conclude the audit. [It] is not the auditor’s duty to visit the [T]rustee[’s] office and check the whole year’s Investment strategies, and for auditor $300 audit work, as I believe that no auditor will visit the [T]rustee’s office and force the [T]rustee to know the whole year’s investment strategies and analysis.”

14. Mr Islam’s submissions are not correct. It is not sufficient for an SMSF auditor to check whether the investment strategy had been reviewed. An SMSF auditor’s job is to ensure there is an investment strategy, the SMSF’s investments were in accordance with that strategy and the strategy had been reviewed by the SMSF.[96] There is nothing on the M Fund audit file that demonstrates Mr Islam did those tasks.

    [96] See s 52B(2)(f) of the SIS Act and reg 4.09 of the SIS Regulations. ‘Your self-managed superannuation fund (SMSF) investment strategy’, Australian Taxation Office (Web page, 16 December 2022) <Your self-managed superannuation fund (SMSF) investment strategy | Australian Taxation Office>. 

15. Market value: At the hearing Ms Bentley pointed out to Mr Islam that for certain other land assets held by the M Fund (the V Street properties) the valuation relied upon (T13-10) was dated 2 July 2019. Mr Islam was auditing the 2021 year and should have updated this valuation. Mr Islam replied that he did not rely upon the valuation at T13-10. He said he instead relied upon the trustee representation letter, the financial statements and had “thought about value” himself. I will not repeat the analysis above. The simple points are that none of this reasoning is on the M Fund audit file, it is not appropriate to rely upon trustee representation letters in this context and Mr Islam’s undocumented thinking about value is not sufficient audit evidence.

16. Ms Bentley pointed out that at T13-30 there is a document entitled “M Fund – Trustee Valuation Notes 30 June 2021” which Mr Islam confirmed he relied upon in his audit of the 2021 year.[97] That document sets out the reasoning behind the valuation of the V Street properties. However, although that document is dated 30 June 2021, it refers to valuations sought and obtained in May 2022. Ms Bentley asked if this document had been created after the event and was not relied upon as part of the 2021 audit. Mr Islam denied that, but he had no explanation for the point raised by Ms Bentley. I find that this document must have been created after completion of the 2021 audit by Mr Islam which was on 31 January 2022. I find Mr Islam cannot have relied upon this document during the course of his audit. It is concerning to the Tribunal that Mr Islam was willing to give the Tribunal and the regulators the impression that certain documents were audit evidence when on their face they cannot be.

    [97] I accept ASIC’s Outline of Closing Submissions dated 18 November 2024, [57].

17. There was also a discussion between Ms Bentley and Mr Islam about the valuation of the M Unit Trust units invested in by the M Fund. Once again Mr Islam stated he relied upon the value of the units in the financial statements, the trustee representation letter, and conversations with the trustee. He did not accept more was required. I find Mr Islam’s approach was incorrect for reasons I have articulated above.

    Conclusion

18. I have determined that subparagraph 130F(2)(a)(i) was enlivened as I have concluded that the files for the D Fund, Y Fund, and M Fund demonstrate that Mr Islam failed to carry out or perform adequately and properly the duties of an approved SMSF auditor under the SIS Act and the SIS Regulations.

19. This is because he failed to satisfy relevant auditing standards as required by section 128F of the SIS Act. The audit documentation on each of the three example audit files was not sufficient to enable an experienced auditor with no previous connection to the audit to understand the audit procedures performed, the significant issues arising during the audit, the audit evidence obtained, the conclusions reached, and the professional judgments made in reaching those conclusions. The other failings are as set out above. In that sense, applying the comments in Brown and Australian Securities and Investment Commission [2009] AATA 286,[98] I have concluded that Mr Islam did not carry out his duties as an approved SMS auditor properly. He was not compliant with the requirements of section 128F of the SIS Act because he was not compliant with auditing standards.

    [98] See [‎15] above.

20. I have also concluded that Mr Islam did not carry out or perform his duty adequately. He did not ask questions when he should have in the three example audits. He did not notice inconsistencies in the evidence and seek to clarify those. He did not correct submissions he made to ASIC in correspondence which he now disavows more than a year later. His evidence before the Tribunal was inconsistent, evasive, and, at times, lacked credibility. He claimed to have additional documents (such as a Share Purchase or Share Subscription Agreement for the D Fund, and phone notes) which, if correct, means he kept audit file material from the regulators. It is hard to understand why Mr Islam would do this if he was acting with propriety. For the reasons below, I have concluded that section 130F was enlivened and a disqualification order or suspension of Mr Islam from being an approved SMSF auditor could be made.

    Whether it was appropriate for ASIC to have made the decision under section 130F of the SIS Act to disqualify Mr Islam from being an approved SMSF auditor

21. As was noted in Australian Securities and Investments Commission v Gilliland [2022] FCA 1421, specific and general deterrence are relevant considerations when determining this question. In Fearon and Australian Prudential Regulation Authority [2006] AATA 918 at [45] Senior Member Constance considered the protection of the public and the integrity of the superannuation system when determining whether to set aside a disqualification order against a trustee.

22. Alongside the evidence I have noted above, I have taken specific and general deterrence, the protection of the public and the integrity of the superannuation system into account. I have considered suspension as an alternative, and concluded disqualification is appropriate.

    Reasons relating to Mr Islam – specific deterrence

23. Mr Islam has acknowledged that he performs hundreds of SMSF audits per year. The D Fund and the Y Fund were each one of 296 SMSF audits in the 2020 year. The M Fund was one of 386 SMSF audits in the 2021 year. There are 104 weekend days per year. After a further reduction for public holidays there were approximately 250 working days in 2020 and 249 in 2021. This means Mr Islam must have completed or commenced more than one SMSF audit per working day. While I accept that many SMSF audits may be simple, I do not believe that level of SMSF audit workload for one person is particularly prudent. It may cause corners to be cut.

24. Mr Islam’s evidence was to the effect that he charges only a small fee,[99] and he did not feel his clients would expect him to do more. For that reason, I am concerned that the mistakes Mr Islam made in the example three files would be repeated in the large number of SMSF audits he completes per year. He seemed to have little insight of his failings. It is not Mr Islam’s clients’ expectations that are the most important thing, it is ensuring that the audit is completed properly and in accordance with the law. Approved SMSF auditors should manage their clients’ expectations accordingly.

    [99] This is referred to as $300 in Mr Islam’s submissions dated 27 September 2024 at C4.4.2, C4.7, on p 35 but it is unclear if this is Mr Islam’s exact fee.

25. Mr Islam’s approach to his case in the hearing and to ASIC and the ATO were relevant considerations. Mr Islam took the position that submissions he made to ASIC on 21 September 2023 could be disavowed a year later, and in advancing his case he decided a winning strategy would be to say to the Tribunal that he still had not provided all audit file information to the regulators despite their requests. Such an approach is not encouraged.

26. Mr Islam’s only submissions on this point in his closing submissions doubled down on his comments about his experience, and the CPD requirements he has satisfied. As stated above, Mr Islam’s experience and CPD compliance is not relevant to the issue at hand. Mr Islam also submitted that ASIC acknowledged in the Tribunal that the D Fund, Y Fund and M Fund audits “were good” and “auditor performance was good and the auditor had done a good job”.[100] The Tribunal does not need to refer to ASIC’s submission to the contrary.[101] This quite simply was not what happened at the hearing before the Tribunal.

    [100] Mr Islam’s closing submissions dated 6 November 2024, 3.

    [101] ASIC’s Outline of Closing Submissions dated 18 November 2024, [70].

27. An order of disqualification is appropriate as specific deterrence to Mr Islam. He appears completely oblivious to his failings. Had he taken the position that he recognised his deficiencies and demonstrated changes and procedures to ensure the same issues will not arise again,[102] a suspension order and/or conditions on his registration may have been options to consider. However, Mr Islam does not demonstrate such insight. Mr Islam submitted he had no file deficiencies. When questioned by Ms Bentley at the hearing, he indicated he would do the same again. I have also considered Mr Islam’s business as a whole. He advised the Tribunal that he also carries on business as an accountant so the loss of his ability to act as an approved SMSF auditor does not, of itself, mean Mr Islam has no earning capacity.

    [102] As was the position in Mr Islam’s 21 September 2023 letter for example – which Mr Islam substantively disavowed before the Tribunal.

    General deterrence

28. The integrity of the SMSF system is important and the role of approved SMSF auditors is critical. Oversight of SMSFs and of approved SMSF auditors by ASIC and the ATO is also critical. For reasons of general deterrence, Mr Islam should be subject to a disqualification order.

29. Clear messages need to be given to approved SMSF auditors. Those messages include that it is not acceptable for approved SMSF auditors to:

    a.Withhold material from the regulators.

    b.Mislead the regulators with submissions you do not correct and later disavow.

    c.Rely on trustee representation letters as sole audit evidence without more – particularly when considering issues such as market value.

    d.Not have phone notes on the audit file of important discussions.

    e.Not document the SMSF auditor’s reasoning on the audit file.

    f.Ignore or not identify inconsistencies between documents.

    g.Maintain audit files that an experienced auditor could not pick up and follow.

30. Approved SMSF auditors need to be aware that the auditing standards need to be complied with or sanctions (such as suspension or disqualification or conditions) may arise under section 130F of the SIS Act. In addition, guidance from the regulators should be considered and, unless it is contrary to the law, inconsistent, or confusing, it should be followed. Client expectations need to be managed accordingly. I also accept ASIC’s submission in relation to general deterrence “[i]f it is indeed the case that all auditors charge so little that, if one auditor is to charge more to do an adequate job they will lose their client base, then there is, it would seem, a broad ranging issue that needs to be addressed.”[103]

    [103] ASIC’s Outline of Closing Submissions dated 18 November 2024, [75].

    The protection of the public and the integrity of the superannuation system

31. As I have noted above, the integrity of the superannuation system relies upon an array of matters, including the professionalism of the approved SMSF auditors.

32. The public needs to be aware that SMSF auditors do not always have a simple job where they simply rubber stamp financial statements. SMSF auditors provide a necessary check of matters in those financial statements and of the SMSF’s compliance with Australian law. If the impression is given by an approved SMSF auditor that they perform a simple task for a low fee, that auditor may not be completing the job adequately and properly giving rise to a risk of scrutiny of both the approved SMSF auditors and the SMSFs they audit by the regulators. Potential penalties can apply including to the SMSFs.

1. I consider that the protection of the public and the integrity of the superannuation system also support a disqualification order in this case.

   Conclusion

2. After considering all relevant matters, I have concluded that the disqualification decision was the appropriate decision. I affirm that decision.

I certify that the preceding 116 (one hundred and sixteen) paragraphs are a true copy of the reasons for the decision herein of General Member J. Dunne

……………………[SGD]……………………………
Associate

Dated: 18 December 2024

Date of hearing:

31 October 2024 and  1 November 2024

Applicant:

Counsel for the Respondent:

Self-Represented

Felicity Bentley

Solicitors for the Respondent:

Aldo Paciocco, Australian Securities and Investments Commission