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  • Compliance audit

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    Professional standards and conduct of audit

    As an approved self-managed super fund (SMSF) auditor, you must possess the required capabilities and competencies to conduct a compliance audit of an SMSF. This includes having full knowledge of the relevant legislation and its application to SMSFs.

    You must conduct your compliance audit in accordance with the Standards on Assurance Angagements (ASAE)External Link produced by the Auditing and Assurance Standards Board (AUASB).

    The relevant ASAEs are outlined under GS 009: Auditing Self-Managed Superannuation Funds (PDF 1.39MB)This link will download a file in the AUASB Guidance StatementsExternal Link.

    Based on your audit, you must be satisfied that the trustees of the fund have met the requirements set out in the super laws. When doing the compliance audit, you should:

    • consider materiality and risk
    • obtain sufficient and appropriate evidence on which to base your conclusions
    • test identified contraventions against the Auditor/actuary contravention report (ACR) reporting criteria
    • document your conclusions, opinions and judgments in writing to keep as part of your audit working papers. There should be sufficient audit working papers to enable another auditor who has had no previous involvement with the audit to understand the work performed and the opinion reached.
    • report your professional opinion about the subject matter in the approved Self-managed superannuation fund independent auditor's report form (NAT 11466)
    • if you form the opinion that a contravention of a matter specified in the ACR may have occurred, may be occurring or may occur in the future; notify the trustee in writing and report this to us in the ACR.

    Our compliance audit guidance

    The table below provides guidance on the minimum expectation of audit checks and evidence in relation to sections of the Superannuation Industry (Supervision) Act 1993 (SISA) and regulations in the Superannuation Industry (Supervision) Regulations 1994 (SISR) that are listed in the Self-managed superannuation fund independent auditor's report and in table 1 of the Auditor/actuary contravention report instructions.

    This guidance material does not replace or limit any professional obligations or standards that you are required to meet. It merely sets out what we expect to see evidenced in an SMSF audit if it were to carry out a compliance review or other activity in relation to an SMSF auditor.

    Table: Minimum expectation of audit checks

    Section or regulation

    Minimum expectation of audit check

    S17A

    To check if the fund meets the definition of an SMSF, the auditor should collect evidence by checking the:

    • trust deed
    • current number and names of members
    • type of trustee
    • relationship between members (for example, no member of the fund is an employee of another member, unless they are relatives)
    • names of individual trustees or directors of corporate trustees
    • details of legal personal representatives where relevant.

    See also:

    • SMSFR 2010/2 Self Managed Superannuation Funds: the scope and operation of subparagraph 17A(3)(b)(ii) of the Superannuation Industry (Supervision) Act 1993.
     

    S35AE

    The auditor should check that accounting records are:

    • kept in Australia
    • written in the English language or in a form that allows easy translation into English
    • kept on file for at least five years (by sighting historical records or seeking written confirmation from the trustees).
     

    S35B

    The auditor should check that the accounts and statements (an operating statement and a statement of financial position) have been:

    • signed by at least two of the individual trustees or two directors of the corporate trustee (or the sole director of the corporate trustee, where the corporate trustee has one director)
    • kept for at least five years (by sighting historical records or seeking written confirmation from the trustees).
    • completed and signed (an operating statement and a statement of financial position)
    • provided with written confirmation from trustees that accounting statements are kept on file for at least five years (in trustee representation letter).
     

    S35C(2)

    The auditor should keep a record of any written requests to the trustees for documents relevant to the audit.

    Trustees should be reminded to provide requested documents in a required timeframe of 14 days. Failure to do so is a reportable contravention.

    S62

    The auditor should:

    • check that the trust deed established the fund solely for the provision of benefits for fund members (upon their retirement or turning 65 years old) and their dependants (in the case of the member’s death before retirement)
    • consider transactions to ensure they have been entered into with the sole purpose of providing benefits to members in retirement and not to provide a current day benefit before a condition of release has been met.

    Indicators that a fund may not be meeting the sole purpose test include:

    • investments acquired, transactions or contracts entered into that
      • appear to provide minimal or no returns for the fund
      • provide a current or additional personal benefit to members (for example the fund invests in a sports club that provides members with free use of facilities)
       
    • the fund is running an active business which may cause the fund to contravene other provisions of the SISA and the SISR.

    See also:

    • SMSFR 2008/2 Self Managed Superannuation Funds: the application of the sole purpose test in section 62 of the Superannuation Industry (Supervision) Act 1993 to the provision of benefits other than retirement, employment termination or death benefits.
     

    S65

    The auditor should obtain evidence that the fund has not lent money or provided financial assistance to members and relatives by:

    • examining bank statements and seeking explanation from trustees for any unusual transactions including transfers of money to members or relatives
    • checking details of all loans by the fund (including parties to the loan, loan term, interest, repayments)
    • checking any transactions with related parties for financial assistance to members or relatives
    • reviewing asset ownership to ensure the investment is owned by the fund and that a charge or other form of security has not been taken over any of the SMSF’s assets to secure a member’s or relative’s personal borrowing. If the auditor has reason to suspect this may be happening, they should consider further checks, such as  
      • property title search to check for encumbrances on real property
      • the Personal Property Securities Register for other parties registering interests against other SMSF assets.
       

    See also:

    • SMSFR 2008/1 Self Managed Superannuation Funds: giving financial assistance using the resources of an SMSF to a member or relative of a member that is prohibited for the purposes of paragraph 65(1)(b) of the Superannuation Industry (Supervision) Act 1993.
     

    S66

    The auditor should check whether the fund has acquired assets from related parties by:

    • identifying the parties involved in fund acquisitions
    • obtain evidence of the parties to acquisitions including sighting minutes of meetings regarding the purchase, invoices or contracts of sale.

    If there is a related party acquisition, the auditor should check whether it is:

    • an excepted acquisition
    • acquired at market value.

    See also:

    • SMSFR 2010/1 Self Managed Superannuation Funds: the application of subsection 66(1) of the Superannuation Industry (Supervision) Act 1993 to the acquisition of an asset by an SMSF from a related party.
     

    S67, s67A, s67B

    The auditor should check whether the fund has any borrowings by examining financial statements, documents and bank statements to check for overdrafts, loans or unusual contractual terms or transactions.

    If there is a borrowing, the auditor should obtain evidence, including loan documents from the trustees, to determine:

    • the reason for the borrowing
    • whether it is allowed under the borrowing exceptions
    • whether the trust deed permits the fund to borrow.

    If the fund has a limited recourse borrowing arrangement (LRBA) under section 67A the auditor should check that the:

    • asset is a type that can be acquired by the fund
    • trust deed allows for LRBAs and the investment is in line with the fund's investment strategy
    • loan documents to ensure there is limited recourse available to the lender should the fund default on the borrowing
    • deed of the holding trust (also known as the custody deed or the bare trust deed)
    • express terms of any guarantee arrangements limit the rights of the guarantor to rights relating to the asset which is the subject of the arrangement.

    If there is a replacement asset the auditor should check that it is allowed to be treated as an acquirable asset under section 67B.

    See also:

    • SMSFR 2009/2 Self Managed Superannuation Funds: the meaning of 'borrow money' or 'maintain an existing borrowing of money' for the purposes of section 67 of the Superannuation Industry (Supervision) Act 1993
    • SMSFR 2012/1 Self Managed Superannuation Funds: limited recourse borrowing arrangements - application of key concepts.
     

    S82

    The auditor should determine if there are related party investments by sighting financial statements, bank statements and any other relevant supporting documents such as share and unit certificates, loan documents or lease documents.

    Where the SMSF invests in related parties, the auditor should check:

    • the proportion of shares/units held in the related entity
    • whether SMSF trustees or related parties hold a controlling interest or can sufficiently influence decisions of the entity (for example, directors, significant share or unit holding, casting votes or control over the day to day operations of the entity)
    • the related entity's financial statements, including whether it has borrowed, its dealings are at arm's length, and distributions are paid as they fall due
    • whether the loan, investment or lease meets the definition of an in-house asset (loans to, investments in and leases to related parties) and whether any in-house asset exceptions apply
    • if there are in-house assets, the auditor calculates the market value ratio of the in-house assets. If the ratio exceeds 5% of the market value of total fund assets, the auditor should seek evidence of a written plan (per section 82 of the SISA) by the trustees to dispose of excess in-house assets by the end of the following financial year to reduce the ratio to less than 5% of total fund assets.

    See also:

    • SMSFR 2009/4 Self Managed Superannuation Funds: the meaning of 'asset', 'loan', 'investment in', 'lease' and 'lease arrangement' in the definition of an 'in-house asset' in the Superannuation Industry (Supervision) Act 1993
    • SMSFR 2009/3 Self Managed Superannuation Funds: application of the Superannuation Industry (Supervision) Act 1993 to unpaid trust distributions payable to a Self Managed Superannuation Fund
    • SMSFD 2008/1 Self Managed Superannuation Funds: how does the happening of an event in subregulation 13.22D(1) of the Superannuation Industry (Supervision) Regulations 1994 affect whether a self managed superannuation fund's investments in related companies or unit trusts are in-house assets of the fund?
    • SMSFD 2007/1 Self Managed Superannuation Funds: when is a dividend or trust distribution 'received' before the end of 30 June 2009 for the purposes of paragraph 71D(d) of the Superannuation Industry (Supervision) Act 1993
     

    S83

    The auditor should check any acquisitions by the fund during the year including the identity of the parties to the transaction to determine if the fund acquired in-house assets by:

    • sighting financial statements, bank statements and any other relevant supporting documents such as share and unit certificates, loan documents or lease documents to check for related parties
    • checking the proportion of shares/units held in the related entity
    • checking whether SMSF trustees or related parties hold a controlling interest or can sufficiently influence decisions of the entity (for example directors, significant share or unit holding, casting votes or control over the day to day operations of the entity).

    The auditor should obtain evidence to determine whether the acquisition occurred at a time when the market value ratio of in-house assets already exceeded 5% or whether the acquisition caused the market value ratio of the in-house assets to exceed 5%.

    S84

    Where a fund has in-house assets, the auditor should obtain evidence that the trustees have taken all reasonable steps to comply with in-house asset rules by checking the:

    • market value ratio of in-house assets does not exceed 5%
    • trustees did not intentionally acquire in-house assets which caused the market value ratio of in-house assets to exceed 5%
    • trustees have made a written plan to dispose of any excess in-house assets to reduce the market value ratio to 5%.

    Trustee documents including minutes of meetings may contain further evidence about the acquisition and disposal of in-house assets. 

    S85

    When examining fund transactions, the auditor should check for schemes (including transactions entered into through third parties) which may be designed to circumvent in-house asset rules or artificially reduce the market value ratio of the fund's in-house assets by:

    • sighting bank statements and other relevant supporting documents for transactions, including the methods for valuing assets
    • considering the relationship between the fund and the parties to the transactions.
     

    S103

    The auditor should obtain evidence that minutes of trustee meetings are kept and retained on file for at least 10 years as required by:

    • sighting meeting minutes and records of decisions relevant to the year under audit and retaining these on the audit file
    • seeking written confirmation from trustees that these minutes and records are kept on file for at least 10 years (in trustee representation letter).
     

    S104

    The auditor should obtain evidence that trustees keep and retain records for at least 10 years of all trustee consents and all changes of trustees, or directors of the corporate trustee, by:

    • sighting records of trustee changes and consents relevant to the year under audit and retaining these on the audit file
    • seeking written confirmation from trustees that these records are kept on file for at least 10 years (in trustee representation letter), especially if changes occurred during the year prior to engagement with the auditor.
     

    S104A

    The auditor should obtain evidence that that all trustee declarations have been signed and retained as required by:

    • sighting a signed trustee declaration for each individual SMSF trustee or each director of the corporate trustee relevant to the year under audit, and retaining these on the audit file
    • seeking written confirmation from trustees that the trustee declarations are kept on file for at least 10 years (in trustee representation letter), especially if changes occurred during the year prior to engagement with the auditor.

    Signing the ATO trustee declaration applies to new trustees and directors from 30 June 2007 and trustees who have undertaken an education course in compliance with an education direction.

    S105

    The auditor should obtain evidence that the fund has retained all member or beneficiary reports as required by:

    • sighting any member or beneficiary reports relevant to the year under audit
    • seeking written confirmation from trustees that the reports are kept on file for at least 10 years (in trustee representation letter).
     

    S109

    The auditor should obtain evidence that the fund’s transactions are conducted at arm’s length (particularly where there are dealings with a related party of the fund) by examining:

    • financial statements and source documents
    • bank statements
    • supporting documents of transactions, such as leases, loan documents or purchase contracts to check for commercial terms and a market rate of return.
     

    S126K

    The auditor should obtain evidence that no trustee or director of a corporate trustee is a disqualified person by seeking written confirmation from the trustees that they are not disqualified persons (in trustee representation letter).

    The auditor may consider further checks in some cases, for example, if the trustees refuse to provide written confirmation or there is reason to suspect they may be disqualified.

    Additional checks the auditor may consider include:

    • company information with the Australian Securities and Investments Commission (ASIC)
    • insolvency or bankruptcy check with the Australian Financial Security Authority.
     

    Sub Reg 1.06(9A)

    The auditor should obtain evidence that the fund has rules for pension payments as set out in SISR subregulation 1.06(9A) and that the fund complies with the rules (ie payments are made at least annually and minimum required payment has actually been paid to the member during the year) by examining:

    • the trust deed
    • bank statements for payments
    • actuarial certificates, where relevant
    • member records evidencing pension payments
    • any amounts accrued as pension payments.
     

    Reg 4.09

    The auditor reviews the fund’s investment strategy for evidence that the trustees have formulated, and invested in accordance with, an investment strategy that:

    • has regard to the whole of the fund’s circumstances
    • considers investment risk and returns, diversity, liquidity and the ability to discharge liabilities as they fall due
    • considers the insurance needs of members
    • is regularly reviewed.

    The auditor checks the investments of the fund to understand if the trustees have invested in accordance with its requirements.

    Evidence that an investment strategy has been regularly reviewed and has considered the insurance needs of members may be found in an updated investment strategy, notations on the current investment strategy or information contained in minutes of trustee meetings.

    Generally, the investment strategy is in writing. If there is no formal investment strategy, the auditor must obtain some form of written confirmation from the trustees on which to base their opinion of the trustee's compliance with the requirements of this regulation.

    A material contravention of SISR regulation 4.09 should result in a qualified auditor's report and lodgment of an ACR. The trustee should also be notified in writing about the contravention. The auditor can notify the trustees in the management letter of any further concerns about the fund's investment strategy and its investments.

    Reg 4.09A

    The auditor should obtain evidence that the fund’s money and assets are held separately from money and assets held personally by the trustees or a standard employer-sponsor by:

    • sighting asset ownership documents, including bank statements, to verify SMSF assets are held in the name of trustees on behalf of the fund (eg R & J Smith as trustees for the Smith SMSF or R Smith Pty Ltd as trustee for the Smith SMSF) and not in the name of the trustees alone
    • where State law prevents ownership in the SMSF’s name, checking for alternative documentation that protects the fund’s assets (eg a valid declaration of trust)
    • reviewing transactions on bank statements to ensure fund money is not mixed with money belonging to related parties of the SMSF.

    Where there has been a change in trustees, the auditor should obtain evidence that ownership documents reflect the change.

    Reg 5.03

    The auditor should obtain evidence that the investment return from reserves is allocated to each member’s account in a fair and reasonable way by:

    • checking details of the reserve account
    • reviewing earning allocations to each member's account to determine if they are reasonable given the circumstances
    • sighting the member records and accounts.

    See also:

    • SMSFRB 2018/1 The use of reserves by self-managed superannuation funds.
     

    Reg 5.08

    The auditor should obtain evidence that minimum benefits have been maintained appropriately by:

    • sighting member accounts and records that evidence pension or lump sum payments
    • ensuring any loans to members are appropriately documented as such, and are therefore not to be considered an early access of benefits
    • checking whether members receiving payments have met a condition of release.
     

    Reg 6.17

    The auditor should obtain evidence that any payments were cashed, rolled over or allotted in accordance with the SISR rules.

    This includes obtaining evidence that the payments were only paid to members who were eligible to receive those payments under the super law and the trust deed (based on age, cessation of employment, death, terminal medical condition, temporary or permanent incapacity, compassionate grounds, severe financial hardship, or transition-to-retirement).

    Reg 7.04

    The auditor should test that trustees were able to accept contributions by checking:

    • the trust deed of the fund
    • members’ ages and employment status
    • the type and source of contributions (this could include downsizer contributions for members over 65 years old)
    • timing and amount of contributions
    • if not already provided to the fund, the member’s TFN was quoted to the trustee within 30 days of receiving the contribution.

    If a contribution was accepted that was inconsistent with the requirements of SISR regulation 7.04, the auditor should check whether the trustees have returned the amount to the entity or person who made the payment.

    Reg 8.02B

    The auditor should determine how the trustees have valued assets and obtain evidence that assets are valued at market value in the fund’s accounts and statements by:

    • obtaining evidence from the trustees to confirm what method of valuation they used to value assets
    • sighting supporting documentation verifying market value of an asset. Evidence must be objective and supportable.
    • sighting third party financial statements to verify that assets such as units in unit trusts, shares and loans are valued at market value. This includes checking that the entity is a going concern and that assets are recoverable.

    A statement in the trustee representation letter or a trustee minute confirming asset valuations is not sufficient audit evidence.

    See also:

     

    Reg 13.12

    The auditor should obtain evidence that trustees have not recognised, encouraged or sanctioned an assignment of a member’s super interest by seeking written confirmation from trustees (in trustee representation letter).

    Reg 13.13

    The auditor should obtain evidence that trustees have not recognised, encouraged or sanctioned a charge over or in relation to a member’s benefits by seeking written confirmation from trustees (in trustee representation letter).

    Reg 13.14

    The auditor should obtain evidence that trustees have not given a charge over or in relation to a fund asset by seeking written confirmation from trustees and by carrying out the following checks:

    • property title search to check for encumbrances on real property
    • the Personal Property Securities Register for other parties registering interests against other SMSF assets.
     

    Reg 13.18AA

    The auditor should obtain evidence that the collectables and personal use assets rules have been met by sighting:

    • insurance documents to check that assets were insured within seven days of acquisition and insured in the fund's name
    • written records of the decision for storage of collectable and personal use assets
    • written evidence from the trustees that the asset is not used by, or leased to, a related party or stored in the private residence of a related party
    • lease agreements for terms and conditions to determine if lessees are related parties of the SMSF.

    If the collectable or personal use asset is sold to a related party, the auditor should obtain evidence that the asset was transferred at market value as determined by an independent qualified valuer.

    See also:

     
    Last modified: 04 Mar 2019QC 45566