Chances are you’ve heard a lot about Self Managed Super Funds (SMSFs). Hardly surprising given there are now over 505,000 SMSF’s held in Australia, with total assets held valued at over $500 billion. This makes it the largest sector of the Australian superannuation industry. But, it’s worth noting that there are a number of legal compliance boxes to tick if you have an SMSF, such as independent audits. If you’ve already got an SMSF or are considering taking the plunge, we’ve worked with guest writer Anthony Fensom, to provide an essential guide to appointing an SMSF auditor:
Self-managed super funds (SMSFs) are legally required to have an independent annual audit by an approved auditor for compliance purposes. What are the essentials to get the process done correctly and avoid a rap from the regulators?
SMSF trustees are required to have an audit done prior to lodging the fund’s annual return (SAR). The auditor cannot be a member of the fund, or the same person who prepared its accounts. They must also be registered with the Australian Securities and Investments Commission (ASIC) and have an SMSF auditor number (SAN).
From July 1 this year, the SAN is required to be included on the fund’s return, otherwise the tax office cannot accept it. ASIC provides an online register of approved SMSF auditors – in addition to those who have been disqualified – at ASIC Connect.
It’s important to note, the auditor must now be appointed no later than 45 days before the due date for lodgment of the SAR, it was previously 30 days.
The auditor is required to examine the fund’s financial statements, assess the fund’s overall compliance with regulations, provide an audit report before the due date for the SAR, and provide their SAN.
The auditor must also report any regulatory breaches to the ATO, with serious breaches potentially leading to fines and penalty tax.
Who can audit your SMSF?
Qualified SMSF auditors are commonly accountants who are also required to be a member of one of the following organisations:
• Association of Taxation and Management Accountants
• CPA Australia
• Fellows of the National Tax and Accountants’ Association
• Institute of Chartered Accountants Australia
• National Institute of Accountants
• SMSF Professionals’ Association of Australia
Documentation required for SMSF audits
The auditor will require a range of documentation, including the fund’s financial statements, bank details, stockbroker transactions and shareholding statements, property contracts and valuations, title deeds, insurance records, details of any related party loans or investments, and the fund’s investment strategy, including consideration of members’ insurance.
Key compliance areas include whether the fund is satisfying the sole purpose test, whether it has a sound investment strategy with arms-length investments, proper separation of personal assets from the fund, and appropriate record keeping.
Preparing for audit
SMSF Specialist Advisor Liam Shorte, says auditors should be seen as “gatekeepers” who can help address issues or rectify breaches to avoid any regulatory difficulties.
“This year we’re finding auditors are being a lot more strict on paperwork and not willing to settle for pro-forma investment strategies or attempts at explaining transactions which don’t seem normal. Auditors are required to report any breaches to the ATO, and it’s clear that they feel that under the new registered auditors regime the ATO will be looking to review their work, so they are ensuring clients prepare detailed paperwork,” he said.
Rather than just a compliance headache, an audit can help reassure SMSF trustees that their fund is on track with its obligations and investment strategy.
The tax related information contained in this article is derived from publicly available information. This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice or tax advice. You should seek independent professional tax advice before making any decision based on this information.