Retirement
I lost my SMSF, can I sue my auditor?
A recent NSW case saw an SMSF auditor held liable for an SMSF’s losses, raising questions around SMSF rights and auditor responsibilities.
I lost my SMSF, can I sue my auditor?
A recent NSW case saw an SMSF auditor held liable for an SMSF’s losses, raising questions around SMSF rights and auditor responsibilities.
The NSW Court of Appeal recently overturned the decision of the trial judge, holding the SMSF auditor in Cam & Bear v McGoldrick accountable.
“The case … highlights the obligation of the fund’s auditor to protect the fund and its trustee against financial risks – an obligation that the auditor can be held liable for failing to meet,” Townsends Business Lawyers principal Peter Townsend said.
The Cam & Bear fund was established for Dr Lance Bear and his wife Jennifer Campbell, who were directors of the corporate trustee of the fund, with the fund’s investments managed by Anthony Lewis, a close friend of Mr Bear and a finance business owner. Mr Lewis also managed contributions to the fund.
The McGoldrick in question is John McGoldrick, the accountant who audited the fund.
Unbeknownst to Mr Bear and Ms Campbell, Mr Lewis’ company was using the funds for unsecured loans rather than cash as they’d believed. The accounts described those assets as “cash – LSL Holdings”.
However, the auditor dealt with Mr Lewis alone and did not provide audited accounts to Mr Bear or Ms Campbell. This became a problem when Mr Lewis told Mr McGoldrick that the SMSF trustee was happy with the holdings, and Mr McGoldrick accepted it at face value.
Mr Lewis’ firms went into liquidation, with Cam & Bear going with them.
“At the hearing Dr Bear argued he had suffered loss as a result of the failure by McGoldrick to represent the cash entry adequately thereby warning him that the investments may not be recoverable,” Mr Townsend explained.
However, the judge said Mr McGoldrick had not caused any loss, despite engaging in misleading conduct.
He said the issue was due to undue trust in Mr Lewis.
However, this was overturned by the three judges in the NSW Court of Appeal, who said the failure to tell Mr Bear that the loans might not be recoverable led him to continue making contributions, which he would not have otherwise made.
“McGoldrick was an experienced auditor engaged for the purpose of protecting the fund and its trustee against financial risks. He should have made proper enquiries as to the recoverability of the amounts held by LSL Holdings and reported the results of those enquiries to the trustee,” Mr Townsend said.
The lessons
“The lessons here are auditors have a duty to protect the fund from financial risk [and] need to advise the trustee about the recoverability of the investments,” Mr Townsend said.
“Trustees bear the ultimate responsibility for the fund but are entitled to rely on the appointed auditor to do the audit job properly.”
Finally, he said putting all the fund’s assets with the same group for investment management, accounting and auditing management is a “bad idea”, and trustees should take care to check the auditor is independent.
RELATED ARTICLES
Self managed super fund
Superannuation guarantee to be paid on government paid parental leave, says ASFA
The Association of Superannuation Funds of Australia (ASFA) has hailed the government's decision to include Superannuation Guarantee payments with its Paid Parental Leave policy as a critical step ...Read more
Self managed super fund
SMSF experts advise against hasty reactions to potential super tax changes
As the Australian Government proposes a new tax measure on superannuation earnings for balances exceeding $3 million, experts from the self-managed super funds (SMSF) sector are urging members not to ...Read more
Self managed super fund
Federal government announces changes to superannuation contribution caps
The Federal Government has announced changes to the superannuation contribution caps, impacting self-managed super funds (SMSFs) and their members from 1 July 2024. Read more
Self managed super fund
SMSF Association calls for joint effort to tackle early super access
The SMSF Association is calling on a collaborative approach including the Government, the Australian Taxation Office (ATO), the Australian Securities and Investments Commission (ASIC), and the ...Read more
Self managed super fund
Rest Super members file class action over alleged insurance premium deductions
Shine Lawyers has initiated a class action lawsuit against Rest Superannuation (Rest), alleging the unlawful deduction of income protection insurance premiums from members' superannuation accounts. Read more
Self managed super fund
Debunking a superannuation tax myth: SMSF Association clarifies the impact on Aussie farms
In the ongoing debate about a proposed new tax targeting superannuation funds exceeding $3 million, the SMSF Association has stepped in to challenge claims from the Association of Superannuation Funds ...Read more
Self managed super fund
Is an SMSF right for you?
When it comes to planning for retirement, one of the most significant decisions Australians have to make is how to manage their superannuation. Read more
Self managed super fund
SMSF growth continues after pandemic peak
The statistics have begun to change coming out of the COVID-19 pandemic, according to new findings from Australian Investment Exchange Limited (AUSIEX). Read more
Self managed super fund
Superannuation guarantee to be paid on government paid parental leave, says ASFA
The Association of Superannuation Funds of Australia (ASFA) has hailed the government's decision to include Superannuation Guarantee payments with its Paid Parental Leave policy as a critical step ...Read more
Self managed super fund
SMSF experts advise against hasty reactions to potential super tax changes
As the Australian Government proposes a new tax measure on superannuation earnings for balances exceeding $3 million, experts from the self-managed super funds (SMSF) sector are urging members not to ...Read more
Self managed super fund
Federal government announces changes to superannuation contribution caps
The Federal Government has announced changes to the superannuation contribution caps, impacting self-managed super funds (SMSFs) and their members from 1 July 2024. Read more
Self managed super fund
SMSF Association calls for joint effort to tackle early super access
The SMSF Association is calling on a collaborative approach including the Government, the Australian Taxation Office (ATO), the Australian Securities and Investments Commission (ASIC), and the ...Read more
Self managed super fund
Rest Super members file class action over alleged insurance premium deductions
Shine Lawyers has initiated a class action lawsuit against Rest Superannuation (Rest), alleging the unlawful deduction of income protection insurance premiums from members' superannuation accounts. Read more
Self managed super fund
Debunking a superannuation tax myth: SMSF Association clarifies the impact on Aussie farms
In the ongoing debate about a proposed new tax targeting superannuation funds exceeding $3 million, the SMSF Association has stepped in to challenge claims from the Association of Superannuation Funds ...Read more
Self managed super fund
Is an SMSF right for you?
When it comes to planning for retirement, one of the most significant decisions Australians have to make is how to manage their superannuation. Read more
Self managed super fund
SMSF growth continues after pandemic peak
The statistics have begun to change coming out of the COVID-19 pandemic, according to new findings from Australian Investment Exchange Limited (AUSIEX). Read more
