SMSF Audit – Everything You Need to Know

There are some major benefits of a SMSF fund or Self Managed Super Fund against basic superannuation. It is considered to be the best option for people who really need to control their financial future. There are several advantages of running SMSF. Here are the top 3 reasons to narrow it down –

• Tax benefits - Capital gains on investment are taxed at 10% and earnings at 15%
• Investment benefits – You can choose the way to allocate assets and mode of investment.
• Estate Planning - You can access strategies with least tax liability and higher asset protection.

But there are certain downsides of SMSF that you should know. You are only responsible for funds’ operation as a trustee and you should follow the strict legislative rules. It means you will need to handle a lot of paperwork and legwork. The annual audit of SMSF is one of them. It is very vital and a regulatory requirement and you can get it well.

In this post, we will find out what SMSF audit involves, such as who can do it, when the right time to do it is, and what outcomes you may face.

First of all, what do you need for an SMSF Audit?

The Superannuation (Supervision) Regulations Act 1994 and Superannuation industry (Supervision) act 1993 administer the super funds. No matter what type or size, all super funds must be audited every year, which is required by both of these acts. There are two parts of this audit –

• Financial audit – To examine the financial report of the fund to ensure that it complies with the acceptable accounting norms.
• Compliance audit – To ensure that the trustee complies with the specific SISR and SISA requirements.

The auditor submits an audit report with an ATO approved form from this. You don’t have to lodge the SMSF audit report with the annual return of SMSF. This way, its timing can be more flexible as per how you can operate. But the auditor should report any breaches related to compliance to the ATO and trustees.

Who can Conduct SMSF Audits?

The ASIC or Australian Securities and Investment Commission handles the management and registration of SMSF auditors who have been approved. It is powerful enough to suspend, disqualify or cancel auditors where required and to set competency norms. The auditor must be properly registered to conduct your SMSF audit and also comply with ASIC. It is vital for you to meet the compliance needs.

SMSF auditors should meet the minimum requirements for experience, education and competency to be registered with ASIC and have proper insurance for professional indemnity. There is no need to check and ensure these skills in your auditor because ASIC will do the rest for accrediting them. All you need to ensure that they have been accredited by ASIC. From the list of accredited SMSF auditors around you, consider these qualities when choosing one –

• Affordability – They must bill time on auditing.
• Independence – Make sure they don’t have financial interest in auditing or have any close business or personal relationships with trustees or members.
• Speed – They must be able to use all the possible means to complete each SMSF audit on time.
• Security – For SMSFs, they must have secure service for electronic data transfer to submit audit details.

What are the documents required for an SMSF audit?

The SMSF trustees should appoint an auditor around 45 days before the auditor's report of auditor is due and they need to provide an engagement letter to the auditor, which consists of their reporting responsibilities for audit. They also need to supply a letter of representation, which clarifies that trustees believe fair representation with financial statements and SMSF follows superannuation regulations.

The auditor needs certain information from trustees once the audit process starts. You need to provide the same in an efficient and timely way to get the work finished on time. It is even better if you can prepare these details and supply them before time. Here are the documents you will need to provide –

• ATO confirmation in written mentioning SMSF as regulated fund
• Copy of investment strategy of SMSF
• Details of company directors and trustees of fund
• Annual income tax return
• Trustee minutes over the year
• Financial statements for the year end
• Contribution paperwork
• Annual bank statement
• Copy of transaction reports and accounting work papers
• Broker statements having share sales and purchases
• Movements and details of fixed interest securities and term deposits.
• Shareholding dividend statements
• Share certificates or unlisted unit
• Property details like rates notices, titles, building insurance and rental agreements
• Other assets like sale and purchase agreements
• Pension payments (when needed)
• Expenses like supporting schedules and reconciliations

Seems overwhelming, isn’t? You don’t have to arrange all these documents at once. You can gather all these documents easily before the time of audit if your SMSF is not fussy in record keeping over the year.

What does an auditor do after getting all these documents?

On the basis of these documents, the auditor determines the trust deed was executed well and complies with SISR and SISA norms, and ensures SMSF empowers trustees well. The compliance audit will consider a lot of things and focus mainly on these areas:

• The fund should be elected as a regulated one and meets SMSF guidelines. It should be maintained only to help members on retirement.
• Trustees carry out administrative obligations, have compliant investment strategies and benefit payment standards.

Dharam has gained over 20 years of experience in the industry since graduating as a Chartered Accountant in 1991. He is qualified in 2 countries including India and Australia.