SMSFs: Auditing and Contraventions — How to keep your self managed super fund compliant
Part 1 of 2 — SMSF Audits

Self managed super fund (SMSF) audit and compliance strategies can help trustees to meet their legal responsibilities, to reduce administrative burdens and to avoid unnecessary breaches of superannuation law.

SMSF trustee(s) must know and understand their obligations to ensure their SMSFs are compliant. This article is Part 1 of a summary of those obligations.

What are SMSF trustee(s)' auditing obligations?

SMSF trustee(s) must appoint an 'approved auditor' in each income year to perform a financial and compliance audit of the fund's operations for that year. The auditor must provide the trustee(s) with a report in the approved form.[1] The trustee(s) must provide the auditor with all the relevant documents necessary to conduct and finalise the audit within the allocated timeframe.

Remember, any audits of SMSFs undertaken for the purposes of the Superannuation Industry (Supervision) Act 1993 (SIS Act) must be conducted in accordance with the Australian Auditing Standards.

What are the minimum audit papers required?

SMSF audit papers should (at the minimum) include:[2]

1. a letter of audit engagement from the auditor to the trustee(s) confirming the appointment and scope of the audit to be conducted;
2. a representation letter from the trustee(s) to the auditors stating that, to the best of their knowledge, the SMSF complies with the requirements of the SIS Act specified in the letter of engagement;
3. working papers that record:
4. the auditor's planning,
5. the nature, timing and extent of the audit procedures performed; and
6. the results and conclusions drawn from the evidence obtained;
7. management letter or audit finalisation report summarising the audit findings including details of all contraventions of the SIS Act and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) and any action taken or proposed by the trustees. Any potential weaknesses in the administration procedures or systems should also be identified;
8. a copy of the final, signed SMSF financial report;
9. a copy of the audit report in the approved form; and
10. a copy of any written advice provided to the ATO.

What must an auditor include in their financial audit?

A financial audit must include at a minimum:[3]

• verification of the value of all investment and other fund assets through valuation reports, share scrips or actuarial certificates; and
• verification of ownership and separation of fund assets through property title deeds, dividend receipts etc, to confirm that all assets are held in the name of the fund or in the name of the trustees on behalf of the fund.

What are the five main areas of compliance for an audit?

An SMSF auditor must ensure that the fund has satisfied the five main areas of compliance, namely:

• The fund meets the definition of a SMSF and has chosen to be a regulated fund;[4]
• The fund has maintained the sole purpose of providing benefits to fund members on their retirement (or to their dependents in the case of the member's death before retirement);
• The trustee(s) have an investment strategy and comply with the investment restrictions, including:
  • the in-house asset rules;
  • restrictions on lending and providing financial assistance;
  • prohibitions on acquiring assets from related parties;
  • restrictions on borrowings;
  • investing on an arm's length basis; and
  • trustee(s) not giving a charge over, or in relation to, fund assets.[5]
• The trustee(s) adhere to contribution and benefit payment standards; and

The trustee(s) carry out their administrative obligations.

Where is an SMSF audit checklist available?

We have prepared an auditing checklist of the Cleardocs SMSF deed against the Australian Accounting Standards Board SMSF Trust Deed Audit Planning Checklist. You can view a copy of this document here. This document is useful to review in preparation for an audit.

What must an auditor do if there is a compliance breach?

When an auditor discovers a compliance breach, it must:

• notify the SMSF trustee(s) in writing, of all instances of non-compliance or breach of the SIS Act; and
• notify the ATO in writing, of all instances of non-compliance that may affect the interests of the SMSF's members or beneficiaries.

The ATO recommends that the auditor notify the trustee(s) as soon as possible after the breach is detected so that the trustee(s) can respond to the issue before the audit is finalised.[6]

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask for a member of the Maddocks Superannuation or Tax and Revenue Team.

More Cleardocs information on related topics

Read

You can read the following ClearLaw articles for more relevant information relating to general tax audits here, here, and here.

You can read earlier ClearLaw articles on a wide range of SMSF topics here.

Order SMSF related document packages

Set up an SMSF
Update an SMSF deed

Change SMSF trustee
Set up an SMSF pension
Arrange SMSF borrowing lending docs:

• for when the lender is a bank
• for when the lender is a related party

Set up an SMSF corporate trustee

SMSF Death Benefit Nomination — binding or non-binding
An SMSF Death Benefit Agreement — binding and permanent

Download checklist

Download a checklist of the information you need to order a document package.

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[1] Section 133 SIS Act. The form of audit report is available from the ATO and titled SMSF — Audit Report (NAT 7573).

[2] Self Managed Superannuation Funds Guide — Roles and responsibilities of approved auditors, ATO, available at http://www.ato.gov.au/superfunds, pg 12.

[3] Self Managed Superannuation Funds Guide — Roles and responsibilities of approved auditors, ATO, available at http://www.ato.gov.au/superfunds, pg 13.

[4] See sections 17A and 19 of the SIS Act.

[5] Exclusions apply in relation to investments in a derivative product see 13.15A SIS Reguations.

[6] Self Managed Superannuation Funds Guide — Roles and responsibilities of approved auditors, ATO, available at http://www.ato.gov.au/superfunds pg 9.