Superannuation prudential framework - consequential audit updates

To: All RSE licensees and RSE auditors 
 

APRA is releasing for consultation several updates to the prudential framework for superannuation. The updates are minor and consequential amendments as a result of legislative reforms in relation to the financial reporting and audit requirements for superannuation.¹ 

The changes also align with APRA's strategic initiative to Modernise the Prudential Architecture and ensure the framework is kept up to date between more comprehensive reviews of prudential standards.

Consequential framework updates

Updates are proposed to the following standards and guidance (the detail of these changes is set out in Attachment A):

In addition to the consequential updates, APRA also proposes to: 

• remove the SPS 310 requirement for an RSE auditor to use an APRA approved form;²  and
• retire Prudential Practice Guide SPG 310 Audit and Related Matters (SPG 310) as the minor and consequential amendments remove the substantive content of this guidance. 

Discontinuation of the Approved form

APRA’s view is that there is no longer a need for an APRA approved form. ASIC will have oversight of the reporting and audit of financial statements of RSEs commencing for the year ended 30 June 2024. SPS 310 will continue to specify, at a high level, matters to be included within audit scope in relation to the assurance of APRA reporting and compliance.

The removal of the approved form and retirement of SPG 310 aligns to the capabilities of a maturing superannuation industry and is consistent with other APRA-regulated industries. This provides greater opportunity for RSE auditors to apply professional judgement to scope audit approaches in a risk-based manner that utilises audit resources efficiently and enables RSE licensees to meet the requirements of SPS 310.

The removal of the form will mean that reasonable assurance will apply more broadly to compliance with RSE licensee law, rather than to specific identified legislative provisions.

The intent of the proposed changes is to improve audit quality and efficiency. The changes provide an opportunity for a more risk-based approach and should not be viewed as a reduction in audit scope, or an expectation of a substantive increase in audit work. The current approved audit form (for year ended 30 June 2023) provides a baseline for developing the audit scope for future years, commencing from the year ended 30 June 2024.

APRA has strong expectations of the audit profession in relation to ensuring the quality of the audit and will continue to engage with ASIC, the audit profession and professional bodies on guidance needed to ensure audit quality. Additionally, APRA expects the Superannuation National Audit Consultative Committee to continue to be a forum to engage with the audit profession on better practices.

Small APRA Funds (SAFs)

While a SAF is an RSE (registrable superannuation entity) under the Superannuation Industry (Supervision) Act 1993 (SIS Act), the legislative reforms excluded SAFs from the definition of an RSE for the purposes of Chapter 2M of the Corporations Act 2001 (Corporations Act). SAFs are therefore not subject to the Corporations Act reforms or to ASIC oversight. Therefore, an RSE licensee of a SAF is required to continue to submit the audited financial reports to APRA. SPS 310 has been adjusted to reflect the different scope of the auditor’s report for SAFs and the continuing requirement for the submission of SAF audit reports to APRA.

Request for submissions

APRA welcomes feedback on the proposed changes to the prudential standards and guidance, set out in Attachment A. 

Written submissions should be sent to superannuation.policy@apra.gov.au by 28 February 2024 and addressed to the General Manager, Policy, APRA. Subject to feedback, APRA expects that the updated standards and guidance would take immediate effect upon finalisation. 

Yours sincerely,

Clare Gibney 
Executive Director, PAD

Attachment A. proposed revisions

SPS 310 Audit and Related Matters

SPS 310 is updated to incorporate several key legislative changes including the following:

• The audit of RSEs’ financial statements is now governed by the Corporations Act and the auditor’s report on the financial reports must be lodged with ASIC³.  As a result, SPS 310 has been adjusted to carve out financial reporting from the audit scope (other than for RSE licensees of SAFs – SAF financial reports will continue to be provided to APRA); 
• SPS 310 also clarifies that the audit report required by SPS 310 may be lodged either with ASIC or APRA, and may be set out in one document, i.e., included in the auditor’s report on the financial reports that must be lodged with ASIC;
• Removal of the approved audit form and clarifying that the reasonable assurance audit scope will apply to compliance with RSE licensee law; 
• Requirement for an auditor to be appointed annually is replaced with the requirement for an auditor to be appointed at all times;
• The definition of an RSE auditor has been expanded to include an individual auditor, an audit firm or an audit company. This has flow on changes to the definition of a Responsible person, independence and fit and proper requirements; and
• Retention of working papers increased from 5 years to 7 years.

SPS 510 Governance

SPS 510 is updated to incorporate new references to the Corporations Act.  Notably, APRA has replaced the terms ‘auditor’ and ‘actuary’ with ‘RSE auditor’ and ‘RSE actuary’ as defined in the SIS Act and clarified that the requirement to invite the RSE auditor to the meetings of the Board Audit Committee relates to the individual RSE auditor or lead auditor. 

Auditor independence

 Further, APRA proposes the addition of a cessation date of 1 July 2028 in respect to paragraph 46. This relates to the time period for which a person that plays a significant role in the audit of an RSE in relation to RSE licensee law is able to continue to play that role and provides APRA with the ability to grant an extension.  This requirement is replaced by section 324DA of the Corporations Act, which commenced from 1 July 2023, and will have practical effect once auditors have performed their role under Chapter 2M of the Corporations Act in relation to RSEs for a 5-year period. 

Paragraph 41 now clarifies that the RSE auditor independence declaration must be obtained from the individual RSE auditor or the lead auditor. Paragraph 42 is also added to support paragraph 40(b) by explaining the circumstances in which a conflict of interest situation arises.

SPS 520 Fit and Proper

APRA is not releasing a draft SPS 520 for consultation as the proposed amendments are minor and consequential only. The proposed amendments to SPS 520 are:

• to clarify that an individual RSE auditor, or a lead auditor of an RSE audit firm or an RSE audit company, is a responsible person, and include reference to these definitions in the SIS Act (existing paragraph 11(d);
• to clarify that fit and proper requirements apply to individual RSE auditors and lead auditors (existing paragraphs 19 and 20);
• to ensure the prudential standard’s consistency with the Corporations Act requirements (including reference to the Corporations Act as required, and updating legislative references to the footnotes to existing paragraph 4); and  
• minor drafting changes that do not impact the substance of the prudential standard.

SPG 520 Fit and Proper

APRA proposes to make some minor additions to guidance to clarify who a responsible person is in relation to an RSE auditor and to ensure that an RSE auditor responsible person’s obligations under the Corporations Act are identified.

APRA is not releasing a draft SPG 520 for consultation as the proposed amendments are minor and consequential only. The proposed amendments to guidance in SPG 520 are:

• to clarify that an individual RSE auditor, or a lead auditor of an RSE audit firm or an RSE audit company, is a responsible person (new paragraph in ‘Responsible persons’ section);
• to clarify that the additional criteria applying to RSE auditors and RSE actuaries do not apply to auditors or actuaries more generally or to those auditors or actuaries who are responsible persons for other reasons (existing paragraph 20);
• to clarify that RSE auditors must also comply with the relevant requirements specified in the Corporations Act and are expected to follow any associated guidance issued by ASIC (new paragraph in the section on ‘Additional criteria applying to RSE auditors and RSE actuaries’); and
• minor drafting changes that do not impact the substance of the prudential practice guide. 
   

Footnotes

¹ See Schedule 6 of Treasury Laws Amendment (2022 Measures No. 4) Act 2023 which commenced on 1 July 2023.

² Prudential Standard SPS 310 Audit and Related Matters - Approved Form

³ The financial reports consist of (a) the annual financial statements, (b) the notes to the financial statements and (c) the directors’ declaration in relation to the financial statements and the notes.