SMSF Audit Roadmap: Navigating Risks, Disputes and ATO Challenges - 5 program recorded series

Program 1: Loss of Trustee Capacity: Navigating the Rocky Road Ahead

Once an SMSF member loses capacity, they can no longer be a trustee of their fund or a director of a corporate trustee of the fund. The consequences of remaining in the roles whilst incapacitated can be extremely costly. However, loss of capacity isn’t necessarily here one day and gone the next. As such, numerous issues can arise, which this session explores, including:

• The importance of the fund’s deed in relation to loss of capacity issues
• What is the process when loss of capacity occurs with a trustee?
• Who is eligible to take over the director role when loss of capacity occurs?
• What if there is no family member or legally appointed representative available to take on the incapacitated trustee’s role?
  • Does the SMSF auditor have any obligations:
  • to refer loss of capacity issues to SMSF trustees?
• if they “sense” a trustee is losing or has lost capacity?
• What documentation would the auditor require that supports a loss of trustee capacity and a resulting change of trustee?
• How to address digital issues for a fund to minimise the impact of loss of capacity

Program 2: Cases and Situations Involving SMSF Disputes: What Should the Audit File Look Like?

With the substantial amounts now involved in SMSFs, it is not surprising that disputes involving disgruntled members and beneficiaries are on the rise. So, how is the SMSF auditor placed when it all goes pear-shaped? This session reviews relevant cases and situations involving SMSFs which could potentially put the auditor in the firing line if someone feels they have been unjustly treated, including:

• Who can take over as trustee or director of a corporate trustee on the death of a member?
• What are the SMSF auditor’s responsibilities for reviewing deed amendments to ensure correct procedures have been followed?
• The class action for Caddick victims - could this be an emerging trend?
• Documentation the professional standards would expect to be in an SMSF auditor’s file for situations involving:
  • trustee decision making for death benefit recipients (Wareham v Marsella [2020] VSCA 92)
  • invalid binding death benefit nominations (Williams v Williams [2023] QSC 90)
  • a change of trustee which is subsequently deemed to be invalid
• Implications for the SMSF auditor involving marital/business partner disputes, including:
  • signing off on an audit if not all parties have signed required documents
  • directors signing requirements for an SMSF
• How the three year renewal rule for binding death benefit nominations applies to SMSFs (Hill v Zuda Pty Ltd [2022] HCA 21)
• Lost fund deeds - should this be picked up in the audit process? (Application by Ellasil Pty Ltd [2023] VSC 69)
• Tips for performing audits with an eye to possible future disputes occurring on the payment of benefits

Program 3: Reporting of Contraventions: The When, How and Why it Matters

The reporting of contraventions by an SMSF auditor is guided by a set of criteria outlined by the ATO. Professional judgement can also come into play for situations that may fall outside this set criteria. This session explores the situations that require contravention reporting and how to go about it, including:

• A review of the seven tests
• Situations where reporting requires professional judgement, including:
  • privacy considerations
  • using the “tip-off” form
• What are your reporting obligations if:
  • you consider a contravention may have occurred (as distinct from has occurred)?
  • your services have been terminated?
• Reporting requirements for continuing contraventions
• Consequences for trustees not meeting allowed time limits when interacting with the auditor
• The types of contraventions where the ATO issue:
  • a rectification direction to a trustee (PS LA 2023/1)
  • a notice of non-compliance
• Practical examples of:
  • contraventions that require reporting
  • contraventions that require professional judgement as to whether to report
  • how to complete the ACR in each case

Program 4: The SMSF as a Property Developer

Having an SMSF involved in a property development can prove challenging for the most experienced of SMSF auditors. This session is designed to flush out the issues that an auditor needs to be mindful of to minimise the risk of closer scrutiny from the ATO, including:

• The various options an SMSF has to purchase and develop property and the arrangements that can attract ATO attention (incl. TA 2023/2)
• Situations where a property purchase and development can trigger the NALI and NALE provisions
• What are the in-house asset exceptions for structuring an SMSF property development?
• What do auditors need to see in an SMSF’s deed and investment strategy when a property development is involved?
• How to address valuation issues during the course of the development
• Auditing a property development involving:
  • a property subdivision
  • a related party builder
• Audit issues that can arise when dealing with:
  • limited recourse borrowing arrangements involving the SMSF acquiring shares or units in a property development entity (SMSFR 2020/1)
  • a partnership or joint venture property development arrangement involving an SMSF
• Practical examples of allowed/non allowed property development arrangements involving an SMSF

Program 5: When the ATO Comes Knocking

The ATO generally conduct a review or audit of an SMSF auditor when they believe a closer look may be required. So, what triggers the ATO into action to pick one auditor from another? This session delves into the answer, including:

• The type of documentation the ATO expect to see on an SMSF auditor’s file
• Examples in practice where SMSF auditors have been selected for a review or audit
• ATO’s likely conclusions for:
  • an SMSF auditor using an audit sampling method that didn’t pick up a contravention (PS LA 2018/1)
  • a change of SMSF trustee where the auditor didn’t include testing that the correct process was followed
• ATO’s accepted audit evidence for:
  • the market values of unlisted shares or units in unit trusts
  • the checking of charges over fund property and other assets (QC 73156)
• The consequences for not responding to an ATO’s request for documentation
• The types of support or education the ATO can recommend an auditor undertake
• The type of matters the ATO are referring to ASIC
• Practical examples where the ATO considers an SMSF auditor has failed to adequately and properly discharge their duties