SMSF Audit Considerations

Managing a Self-Managed Superannuation Fund (SMSF) means complying with a range of regulatory requirements, including the need for an annual audit. This audit is designed to ensure that the SMSF is being managed in accordance with the Superannuation Industry (Supervision) Act 1993 (SIS Act) and other relevant regulations.

For SMSFs with property, unlisted investments or commodity investments, the audit process can be more complex than for those with more traditional investments. We provide an overview of the key considerations and specific regulatory requirements that apply to these types of investments and the common audit issues that can arise.

Property Investments

Whether commercial or residential, property is a popular investment option for SMSFs. However, one of the concerns for auditors when it comes to property investment is valuation.  Trustees are required to ensure that all investments and assets are carried at market value each year, which necessitates an annual assessment of market value.

There is a misconception that getting a property valuation done every three years will be sufficient. While Superannuation Industry Supervision (SIS) regulations require trustees to undertake annual valuations, an independent valuation by a third party may not be required every year as an assessment of relevant factors may be more appropriate.

In some situations, investments such as property may not experience significant changes in value from year to year. However, recent changes to superannuation regulations, the COVID-19 pandemic, and the current housing shortage, have influenced property values.

If you believe the value of your property has not changed in the last twelve months, you can seek confirmation from a property agent or valuer to support this sentiment.  As your auditor is not a property expert, if you do not provide the required information to ensure the valuation is appropriate, they may source this information themselves, which could increase the cost of the audit.

The ATO website provides additional information regarding what they believe is required to properly assess the value of SMSF investments.

Unlisted Investments

As SMSF trustees continue to search for a higher return on their investments, we have seen a recent surge in private equity investments including private trusts, companies, and private debt arrangements. 

However, auditors need to consider two crucial aspects of these investments:

  1. Auditors must determine whether the investment is connected or related to the SMSF, its members or relatives.  There are restrictions on the amount of SMSF assets that can be invested in any investment related to the trustee, members, or family members (or entities under their control). As a result, the auditor will need to establish the trustee’s connection to the investment and whether any related parties control the entity in which the SMSF has invested. Given these rules can be quite complex, we recommend discussing any potential investment with your accountant, adviser, or auditor to ensure you comply with the restrictions regarding related party investments. 
  2. Valuing these types of investments can be challenging as they are not listed and few transactions occur, making it difficult to determine market value. If the investment is in a private trust or company, the auditor will require copies of the relevant financial statements of the company or trust, as well as additional information regarding the valuation of any underlying assets such as property. We recommend confirming with your auditor the information they need to form an opinion on your assessment of the market value of these assets. A trustee minute documenting what you have assessed to form your opinion of value is always a good starting point. If the investment is a private debt arrangement, the auditor will also need to understand how you assessed the recoverability of the investment.

Bullion – Gold, Silver, Platinum (commodities)

Investing in commodities such as gold, silver, platinum, and other precious metals, has always been popular.  There are two ways to hold these types of investments:

  • Directly in physical bullion
  • Bullion exchange or service.

The main audit issue with this type of investment is not valuation - as it is readily determined -  but rather the existence of the investment.

If an investment is held with a bullion exchange or service, a statement indicating the type, quantity and value of the commodities and confirming the investment is held in the name of the SMSF and trustees, is generally issued at the end of the financial year.

If the bullion or commodity is held physically, you will need to provide sufficient documentation for the auditor to establish:

  • The SMSF is the owner of the bullion -which can usually be verified by invoices in the name of the SMSF and confirmation that the cash to purchase the bullion was drawn from the SMSF bank account

The bullion still exists at year end, which can be verified through physical sighting by an independent person or through photographic evidence that is dated and supported by the original purchase documentation.

SMSF Audit Documentation Checklist

Understanding the key considerations and specific regulatory requirements that apply to these investments and common audit issues which can arise is made much easier with our SMSF Audit Documentation Checklist.

Download checklist

Contact Us

If you are unsure what your auditor requires from you when it comes to the valuation of your assets and investments, contact your local BDO adviser today who can guide you through the process.

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