Challenges in Conducting the SMSF Audit – 7 program video webinar series

Program 1: Auditing the Investment Strategy in a COVID-19 Era

Recent case law has raised the pressure on the SMSF auditor’s duty of care, particularly when scrutinizing a fund’s investment strategy. These challenges have only increased in light of COVID-19 and the sudden drop of assets. This session examines the key issues, including:

• Understanding compliance with regulation 4.09 (2)

• What has driven the extra ATO focus on investment strategy?

• Is it just a question of diversity of investment or more than this?

• Is holding 90% of SMSF value in one asset a risk not worth taking?

• Impact of COVID-19 and plummeting asset values – how should investment strategies be adjusted to cope?

• COVID-19 and early access (authorised / unauthorised) – does this impact the investment strategy?

• Getting the trustees to explain investment rational

• Proof of why trustees follow a particular strategy – importance of minutes and other documentation

• ATO role in assessing adequacy of investment strategy

• Auditing or providing financial advice – when are you crossing the line?

Program 2: Non-Arms Length Income and Expenses: The New Landscape

Recent changes have focused more than ever on income going into the fund and fund expenses. The nexus that puts it into either category is explored in this session, along with recent reforms introduced in light of COVID-19. It covers:

• Identifying related parties and where transactions must be at arms length

• Understanding recent amendments to law on NALI and fund expenses

• The ATO perspective on NALI and expenses

• Draft Law Companion Ruling LCR 2019/D3 – what is its impact?

• Demonstrating sufficient nexus to non-arm’s length expenditure and income

• Restrictions on what trustees can do for the fund

• Performing actions other than in capacity as trustee – what are the risk areas?

• Unpacking the ATO’s COVID-19 rent relief concessions

• Related party rent adjustments (discounts, deferrals or rent holidays) – are they reasonable and fair? Do they stack up in light of contributions paid from the related party to the fund?

• Audit outcome for NALI - Part A and/or Part B qualification?

• Case studies on application of new rules

Program 3: SMSF Asset Valuations: Unlisted Shares and Units Practically Explained

Determining market value on unlisted shares and units in unit trusts can be fraught with danger, particularly when evidence may not be sufficient. However, with valuations changing dramatically in light of COVID-19, the task now comes with even more risk. This session looks at the key issues, including:

• What might be acceptable for valuation purposes:Audited financial statements - Recent sales - Independent valuation of underlying asset

• How much testing is required of underlying assets?

• What types of third-party verification is sufficient?

• How has the landscape changed due to COVID-19?

• Clarifying what trustee has done in relation to valuation of assets

• What is sufficient audit evidence on valuations?

• What to do when there is insufficient audit evidence – when should you qualify?

• ATO position on valuing unlisted shares or units

Program 4: LRBAs: Tricks and Traps for Auditors to Check

LRBAs can be a valuable asset for SMSFs in accumulation. However, they come with significant risks. This session looks at common ‘mistakes’ in SMSF LRBA arrangements which the auditor must be on top of, particularly in a coronavirus landscape. It includes:

• Loan arrangement disguising involvement of SMSF

• Identifying non-genuine LRBAs

• Investments in residential property trusts using borrowings and related party tenants

• Setting up LRBAs using book entries and not actual borrowings

• Use of corporate bare trustee for multiple LRBAs with trustee as guarantor

• Recent ATO guidance regarding bare trusts and LRBAs

• Related party LRBA terms being modified to allow the fund to reduce payments in light of COVID-19: Are they reasonable and fair? - Do they still permit the fund to remain in the safe harbour?

Program 5: The ATO’s SMSF Compliance Program of Work Including Auditor Compliance

In this session, hear directly from the ATO on the regulator’s plans for the oversight of SMSFs and auditors in the ensuing income year and what this will mean for auditors. This session will cover:

• The ATO’s SMSF compliance philosophy

• Results from the SMSF compliance program for 2019-2020

• ATO’s current practice on administrative penalties for SMSFs

• SMSF compliance program for 2020-2021

Program 6: ASIC Sanctions and Penalties: Time to Get Tough

An increasing number of SMSF auditors are being referred to ASIC for non-compliance. In this practical session, we unpack ASIC’s current approach to sanctions and penalties and the key lessons for auditors. It covers:

• ASIC’s role in dealing with auditor misconduct

• How ASIC assesses reports of misconduct

• What happens after the initial assessment?

• Possible outcomes: Suspension versus disqualification and/or conditions - Consequences of breaching conditions imposed by ASIC

• Appealing decisions by ASIC

• Whistleblowing and reporting to ASIC – rights and protections available

• Lessons from recent war stories

• Future reforms to ASIC’s powers

Program 7: Auditor Independence – When Appearances Are Not Enough

The ATO is increasingly concerned about SMSF auditors not complying with independence requirements. This session examines threats to independence and how to mitigate them: It covers:

• Independence rules - APES 110 Code of Ethics for Professional Accountants

• Threats to independence – understanding the risk profile

• Auditor misconceptions on independence

• Independence risk situations and what to do about it: Auditing family members’ funds - Same partner does audit when doing other work - Reciprocal audits - Division of responsibility in small to medium firms - Referral sources - Practice structure problems - Auditor networks and associates

• What the auditor can do directly to mitigate an independence threat

• Does the quality of audit mitigate an independence risk?

• When must you remove yourself from the audit?

• Dealing with the regulators when questioned about independence

• Penalties for breaching independence rules

• Case study – Audit independence checklist