Self-Managed Superannuation Fund (SMSF) auditors have recently received a lot of media attention following new and updated independence guidelines issued by the Accounting Professional & Ethical Standards Board (APESB), about how SMSF audits must be conducted going forward.
SMSFs must be audited each year and the auditor must be independent from both the fund and the accountant or administrator who prepares the financial statements. Many service providers have historically conducted both accounting and audit services within the same firm, ensuring separate service lines and partners are responsible for each function.
Subsequent to the release of APES 110 Code of Ethics for Professional Accountants (including Independence Standards) earlier this year, the Australian Taxation Office (ATO) has provided new guidance in the SMSF audit space and made it clear that it does not believe service providers should perform both the audit and accounting functions for a SMSF. This will become a hard and fast rule from 1 July 2021, and the ATO is encouraging SMSF accounting practices to implement transitional arrangements to outsource their SMSF audits in the current financial year.
What does this mean for you, as a SMSF trustee?
If your accountant is currently responsible for both the accounting work and audit of your SMSF, you can expect to see some changes in the near future.
Where BDO is responsible for both accounting and audit functions, your BDO adviser will ensure your audit is referred to a qualified and competent SMSF auditor, and as your advisers, we will act as the conduit between you and the auditor.
BDO is best placed to facilitate the audit process, assist the trustee to respond to the auditor in a timely manner and ensure the process is seamless for trustees. Of course, because the auditor is engaged by the SMSF trustees, there may be times when they will want to communicate with you directly.
This is an appropriate time to remind you about the purpose of your SMSF audit. Your SMSF is required, by law, to be audited and, as a tax agent, we cannot lodge your fund’s income tax return until the audit is complete (because we must advise the ATO of the audit sign off date).
The audit process is an independent verification of the SMSF’s assets, liabilities and transactions, as well as an independent checking of the SMSF’s compliance with all the super rules (known as SIS compliance).
To ensure they can deliver an independent verification, your SMSF auditor will request originals (or copies of originals) of bank statements and investment documentation (such as shares, dividends, contract notes and property documentation).
What is the auditor’s focus for FY2020?
Due to the unusual events of the 2020 financial year, SMSF auditors will focus on key areas of the fund’s operations. Your auditor will consider the impact of the COVID-19 pandemic, and whether the fund (or its investments) were impacted by other significant events, such as bushfires, floods or droughts.
Some of the key audit focus areas this financial year include:
- Benefit payments – Documentation to support the distinction between pension payments and lump sum benefit payments, as well as sighting release authorities for any COVID-19 Early Access withdrawals
- Property valuations – Has the valuation of property assets been impacted by events in 2020? Is now a good time to get a new valuation or appraisal? The ATO has advised auditors to seek expert/independent valuations or appraisals for property investments in the current year
- Property and rental relief – Did you, as trustee, offer rental relief to your tenants as a result of the COVID-19 pandemic? The auditor will need copies of all correspondence between the SMSF and tenant, and any documentation provided by the tenant to support their request for rental relief
- Private investments – If you have investments in private entities (private trusts or companies) the focus on audit documentation has increased in the past 18 months. The auditor’s key area of focus is generally centered on how you, as trustee, have determined the market value of these types of investments. Market value should be what someone is prepared to pay you for your investment. Without sufficient documentation to support your valuation assertions the auditor will need to qualify their audit report
- Investment strategies – The ATO has been clear in its communication that it expects SMSF trustees to have reviewed and reassessed their investment strategy as a result of events in 2020 (triggered in part by the significant decline in equity markets from January to March 2020). You may not need to update your investment strategy, but the auditor will be looking for documentation or evidence that you considered the fund’s circumstances and the investments in light of the significant events of 2020.
The SMSF audit should not be a difficult process. The auditor is generally not going to be asking for any more documentation than you, as trustees, would already have to assess your SMSF transactions and investments on an ongoing basis.
If you have any queries in relation to your SMSF audit, please contact your SMSF adviser. If you are a BDO client, your adviser will be in touch soon.