Risk-Proof Your SMSF Audits: The Ultimate Auditor’s Toolkit - 5 program recorded series

Program 1: It Doesn't Always Pay to Keep it In-House

High on the list of contraventions reported to the ATO by SMSF auditors is the breaching of the in-house asset rule. This session explores the expansive definition of an in-house asset and the implications if the allowed level of an SMSF’s holding of such assets is exceeded, including:

• What assets and agreements are considered to be in-house assets?
• Can an investment in a related trust or company be excluded from the in-house asset definition?
• Does a contravention of the in-house asset rule occur if an SMSF has an unpaid distribution from a trust? (SMSFR 2009/3)
• Action a trustee is required to take if an SMSF’s in-house assets exceed the allowed level, including:
  • determining in which financial year the breach occurred
  • complying with sec. 82 SIS Act 1993
  • the evidence an auditor should obtain in relation to that action
  • auditor reporting obligations
• When is the acquisition of new in-house assets prohibited (sec. 83 & 84 SIS Act 1993)
• What are the reporting requirements for in-house assets:
  • of 8% at 30th June?
  • of less than 5% at 30th June, however greater than 5% during the financial year?
• How the $30,000 financial threshold test applies to in-house asset breaches
• Examples of whether the in-house asset test is breached by related party leases of business property (SMSFR 2009/1), including:
  • a farm with a water licence
  • residences used for both business and private purposes

Program 2: Asset Valuations in an SMSF: When to Dig Deeper

The review of asset valuations by an SMSF auditor can be one of the more difficult tasks to ensure the required audit evidence is obtained, and depending on the asset involved, sometimes further digging is required. This session explores the various asset classes and the types of documentation an auditor may require to support the values provided, including:

• When is the opinion of a qualified independent valuer required?
• The specific valuation requirements for:
  • listed and unlisted securities in companies and unit trusts
  • real property, both residential and commercial
  • related party transactions
• Common issues the auditor encounters with obtaining valuations and tips and strategies to get over the hurdles
• Practical examples where valuations fall short and the auditor’s obligations when those situations occur, with regard to:
  • issuing a qualified or unqualified audit report
  • lodging an ACR
  • reporting in the management letter
• Is there a gap being experienced in practice with the ATO’s compliance approach to the auditor’s valuation evidence?
• Applying professional scepticism with valuations and understanding the mischief that can drive under or overvalued assets, including in the context of the the proposed $3 million super tax involving unrealised gains
• The type of asset valuation discrepancies being referred to ASIC
• Case study - how far do you go for a fund’s investment in an unlisted unit trust that:
  • owns a property?
  • conducts a business?

Program 3: Have You Checked that the Assets Owned by an SMSF are owned by the SMSF?

Regulation 4.09A of the SIS Regulations 1994 requires a trustee of an SMSF to keep the money and other assets of the fund separate from money and assets held by the trustee personally. This session is designed to assist the SMSF auditor with ensuring that this obligation is being met, including:

• Asset ownership requirements for:
  • individual trustees
  • a corporate trustee
  • a change of trustee
• Audit procedures to carry out if an SMSF’s investments are held in:
  • the trustees names alone without reference to the fund’s name
  • unlisted entities
• When and how often should ownership confirmation be obtained directly from:
  • performing a title search
  • financial institutions and share registries
• Auditing requirements when a trustee provides:
  • a declaration of trust
  • an acknowledgement of trust
• Are there any stamp duty traps when using declarations or acknowledgements of trust?
• Auditing requirements for an SMSFs investments held jointly or as tenants in common with another entity
• Traps with correct ownership of assets acquired using limited recourse borrowing arrangements
• Checklist of audit procedures for the varying asset classes to ensure reg. 4.09A SISR 1994 has been adequately covered

Program 4: The Do's and Don'ts of Lending Funds to and from an SMSF

Whilst there is no blanket rule that says an SMSF can’t be a party to a borrowing arrangement, the trustees and auditors need to be very careful about the circumstances of such loans to ensure the arrangement doesn’t fall foul of the SIS rules. This session explores the issues, including:

• Situations where you can and can’t lend SMSF funds
• When are temporary borrowing arrangements allowed?
• Audit evidence that supports an allowed loan and the record keeping time limit requirements
• How ATO are applying scrutiny to SMSF lending practices, including TA 2010/5
• Auditor reporting requirements for loan breaches
• Case study

Program 5: 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