What we look for when auditing an SMSF auditor

Auditor independence standards of APES 110

SISA: paragraph 128F(d)

SISR: regulation 9A.06

Australian Auditing Standards (ASAs)

SISA: subparagraph 128F(c)(ii)

Standards on Assurance Engagements (ASAEs)

SISA: subparagraph 128F(c)(iii)

Competency standards

SISA: subparagraph 128F(c)(i) and 128Q

ASIC Class Order CO 12/1687 Competency standards for approved SMSF auditorsExternal Link

Evidence of current compliant professional indemnity (PI) insurance policy

SISA: paragraph 128F(b)

SISR: regulation 9A.05

Undertake prescribed continuing professional development and keep a written record

SISA: paragraph 128F(a)

SISR: regulation 9A.04

Fit and proper to be an SMSF auditor

SISA: paragraph 128P(1)(a)

PS LA 2018/1

The auditor audited their own or an immediate family member’s fund.

APES 110: paragraphs R510.4, R521.5 and R523.3

GS 009: paragraph 46 of GS 009

The Guide: section 8.4

The auditor audited the fund of a partner or employee of the firm (or a network firm).

APES 110: paragraph R523.3

GS 009: paragraph 46

The Guide: section 8.4

The auditor, audit team member or their firm (or a network firm) audited the fund of an individual they have a close business relationship with (unless any financial interest is immaterial, and the business relationship is insignificant).

APES 110: paragraph R520.4, 520.3 A1 to 520.4 A1

GS 009: paragraph 46

The Guide: section 8.4

The firm (or a network firm) assumed a management responsibility for the fund.

APES 110: paragraph R600.7, R600.8 and 600.7 A1 to 600.7 A4

GS 009: paragraph 48 of GS 009

The Guide: sections 8.4 and 8.5

Where the auditor is a sole practitioner, the auditor (or their employees) provided accounting or bookkeeping services to an SMSF audit client.

APES 110: subsections 601, R601.5 and 601.5 A1, 8.4

The Guide: section 8.5 (scenario 3)

Where the auditor is a member of a firm, the auditor, their employees or the firm (or a network firm) provided accounting or bookkeeping services to an SMSF audit client, unless:

• the services are routine or mechanical, and
• the firm addresses any independence threats created by providing the services that are not at an acceptable level (by applying appropriate safeguards).

APES 110: subsection 601, paragraphs 600.7 to R600.8, 601.4 A1, R601.5 and 601.5 A1

GS 009: paragraphs 46 and 48 to 50

The Guide: sections 8.4 and 8.5 (scenarios 1 to 3)

The auditor or their firm were involved in a reciprocal auditing arrangement.

APES 110: part 4A, section 410

GS 009: paragraph 54

The Guide: section 8.5 (scenarios 8 and 9)

The fees generated from multiple SMSF audit clients referred from one source represent a large proportion of the firm's total fees; or the fees generated by a firm from an SMSF audit client represent a large proportion of the revenue of one partner or office of the firm.

APES 110: part 4A, paragraphs 410.3 A1 to AUST 410.3.1 A1

GS 009: paragraph 53

The Guide: section 8.5 (scenarios 6 and 10)

The auditor audited the fund of:

• a close family member (parent, child or sibling who is not an immediate family member), or
• an individual they have a close personal relationship with (individual who is not an immediate or close family member).

APES 110: paragraphs 521.3 A1 to 521.3 A2, 521.6 A1 to 521.7 A3 and 510.10 A5 to 510.10 A12

GS 009: paragraph 47

The Guide: section 8.4

The auditor or their firm provided taxation and/or financial planning services to the SMSF trustees.

APES 110: subsection 604

GS 009: paragraphs 51 and 52

The Guide: section 8.5 (scenarios 4 and 11)

The auditor audits an SMSF client of a former firm they previously provided non-assurance services to.

APES 110: section 120

The Guide: section 8.5 (scenario 5)

The auditor has a long association with an SMSF audit client.

APES 110: section 540; paragraphs 540.3 A1 to R540.4

The Guide: section 8.5 (scenario 13)

Other independence issues not already covered by the above scenarios.

APES 110: part 4A

Audit strategy and plan

(ASA 300)

Evidence of an audit strategy and audit plan on file (as separate documents or combined).

Audit strategy and plan were adequate.

Comprehensive audit checklist.

An audit strategy on file that sets the scope, timing and direction of the audit.

An audit plan on file describing the nature, timing, and extent of planned risk assessment.

Audit procedures prepared and included in the audit file.

Engagement letter

(ASA 210)

Evidence of a signed engagement letter covering the year of audit on file.

Complies with the auditing standards and is signed by both parties.

Representation letter

(ASA 580)

Evidence of a representation letter signed by the trustees that covers all provisions of the SISA and SISR relevant to the year under audit (for example sections 103, 104 and 105 of the SISA and regulations 13.12 and 13.13 of the SISR).

Included in the audit file and signed by the trustees.

SMSF IAR

(section 35C of the SISA)

Evidence of the signed SMSF IAR in the approved form.

Part A or B modified if required.

The IAR contains all the SISA and SISR provisions relevant to the year under audit.

Management letter

(ASA 260)

Section 129 of the SISA

Evidence that a management letter was issued to the trustees where appropriate.

If any issues and or contraventions have been identified, they have been included in a management letter to the trustees.

Audit evidence

(ASA 500)

Sufficient and appropriate evidence obtained to support the auditor’s opinion, including opening balances.

Adequately evaluated the audit evidence, including testing where data feeds or automation have been used (per ASAE 3402).

Any deficiencies in evidence obtained or instances where the auditor had the evidence but did not evaluate it adequately.

Documenting the audit

(ASA 230)

Adequately documented the audit to demonstrate relevant audit checks were undertaken and conclusions reached.

Audit notations, calculations, conclusions, and judgments made are documented in the audit file.

Auditor knowledge and understanding of risks

(ASA 315)

The auditor demonstrated an appropriate level of knowledge and understanding to enable them to identify and assess risks during the audit of an SMSF.

Any deficiencies identified in relation to the auditor’s skills or knowledge relevant to the SMSF audit.

Assets exist

The assets reported in the financial statements exist.

Look for supporting documents including purchase contracts or invoices, physical verification when possible.

Ownership

The fund trustees own the assets reported in the financial statements and any income and expenses relate to the fund.

Look for title deeds, purchase contracts, invoices, trustee declarations, rental statements, insurance contracts.

Completeness

Fund transactions are complete and recorded in the correct period.

Cross-check bank statement transactions, invoices and receipts to the trial balance, ledger accounts and financial statements.

Classification

Transactions and events have been recorded in the correct accounts.

Cross-check asset documents (invoices, purchase documents, share and unit certificates, bank statements) with accounts in the financial statements.

Valuation

Assets, liabilities, and member entitlements are reported at the correct valuation.

Check for independent market value documentation.

For trustee valuations, check for evidence that the auditor obtained information from trustees supporting the valuation. This includes the method used and supporting documentation to show it was based on objective and supportable data.

Definition (section 17A of the SISA)

The fund meets the definition of an SMSF.

Check:

• the SMSF trust deed
• trustee consent forms
• trustee declarations
• member accounts
• directors of the corporate trustee (ASIC checks). 

Fund accounts and statements (section 35B of the SISA)

Trustees have signed the fund’s accounts and financial statements.

Check audit has been carried out on signed financials.

Sole purpose (section 62 of the SISA)

The fund meets the sole purpose test – no arrangements or investments have been entered into with the intent of providing a present-day benefit to members.

Checks include:

• contracts
• minutes
• bank transactions
• ledger accounts
• rental statements
• financial statements
• the fund’s trust deed and investment strategy. 

Loans or financial assistance to members or relatives (section 65 of the SISA)

No loans or financial assistance have been provided to members or relatives of fund members.

Checks include any relationship between the fund and the borrower or receiver of financial assistance or loans, as well as whether loan is genuine – check:

• rental statements
• bank statements of fund and borrower
• accounts and financial statements and ledgers
• investment strategy
• minutes. 

Acquisitions (section 66 of the SISA)

Assets acquired were allowed to be acquired by an SMSF.

Check for:

• type of asset, relationship between the fund and seller
• purchase contract
• title deeds, acquired at market value. 

Borrowings (sections 67, 67A & 67B of the SISA)

No borrowings have been made by the fund unless they meet the borrowing exceptions. The borrowing exceptions include:

• certain short-term borrowings less than 10% of value of fund assets to pay beneficiaries (≤90 days)
• cover settlement of securities transactions (≤7 days)
• pay super surcharge (≤90 days)
• limited recourse borrowing arrangements (LRBAs) that meet the requirements in section 67A, and section 67B (for replacement assets). 

Checks include:

• bank statement transactions
• financial accounts and statements
• ledgers
• investment strategy
• minutes.

For LRBAs, check:

• that the asset was a single acquirable asset
• purchase documents
• holding trust deed
• loan (limited in recourse) contracts
• repayments
• that related-party LRBAs meet the safe harbour provisions
• for non-arm’s length income (NALI).

In-house assets (sections 82 to 85 of the SISA)

The fund has no in-house assets (loans to, leases with or investments in related parties) or it has in-house assets that represent less than 5% of total fund assets.

Checks include relationships between the fund and other parties to the arrangements.

Look for:

• contracts
• minutes
• investment strategy
• related entity’s financials
• unit or share register
• certificates.

Calculate in-house asset percentage based on market values reported in the financial statements.

Check trustees used a reliable method to value assets at market value.

Trustee records (sections 103 to 105 of the SISA)

Trustees have kept and retained minutes of meetings, records of changes of trustees, signed trustee declarations (for new trustees and or directors after 30 June 2007), and member and or beneficiary reports.

Look for documentation confirming that the auditor checked this including representations by the trustees in the trustee representation letter.

Arm’s length (section 109 of the SISA)

SMSF investments made and maintained on an arm’s length basis.

Examine:

• contracts
• lease and loan agreements
• financial accounts and statements
• ledger entries
• bank statements for transactions

Trustee disqualification (section 126K of the SISA)

No trustee, or director of a corporate trustee, of an SMSF is a disqualified person.

Look for documentation confirming that the auditor obtained a representation from the trustee(s), and directors of the corporate trustee, about their disqualification status and checked the:

• ATO disqualified trustees register
• Australian Financial Security Authority National Personal Insolvency Index
• ASIC Banned and disqualified register
• ASIC's Published Notices showing appointments of liquidators or restructuring practitioners.

Unlisted investments (potential in-house asset, sole purpose and arm’s length issues)

Unlisted trust and unlisted company.

Check relationship between:

• fund trustees
• trustees of the unit trust
• directors of the unlisted company.

Check documentation such as:

• financial statements (borrowings)
• trust deed (type of trust – discretionary, fixed)
• unit register (percentage of units held by the SMSF)
• distribution statements
• the SMSF’s unit certificates
• bank statements
• distributions paid or owed.  

Other assets

Confirmation of assets held by the fund including purchase and sale documents, evidence of market value, investment returns and ownership.

Look at the following:

• Listed shares – share certificates, a break-up of listed shares, dividend statements.
• Real property – residential or business real property?
• Ownership and valuation – title deeds, declaration of trust and insurance documents and market value determination supporting evidence.
• Arm’s length – rental and or lease documents for relationships between parties involved, evidence of rent received and whether it is at market rate.
• Use of assets – who is using and any current day benefit.  

Investment strategy (regulation 4.09 of the SISR)

The fund has a regularly reviewed investment strategy that considers the whole of the circumstances of the fund including risk, return, liquidity, diversity of investments and any insurance needs for the members.

Does the fund have a compliant investment strategy and has the fund adhered to that strategy? Check the financial statements, minutes and investment returns.

Separation of assets (regulation 4.09A of the SISR)

Fund money and assets are kept separate from those held personally by trustees.

The fund trustee is recorded as the owner of the fund’s investments, and all transactions in the fund’s bank statements relate to the fund itself, including insurance policies. 

Market value (regulation 8.02B of the SISR)

Trustees have valued assets at market value in the financial statements.

Supporting evidence showing when and how the trustees valued assets at market value based on data that is supportable and objective. Any conclusions or judgments made have been documented in the audit file.

Collectable and personal use assets (regulation 13.18AA of the SISR)

Collectable and personal use assets owned by the fund comply with the SISR.

(Insured within 7 days of acquisition in the fund’s name, not used by, leased to, or stored in the premises of a related party, and only sold to a related party at market price as determined by a qualified independent valuer).

Storage decisions documented, insurance documents, lease agreements, purchase, sales, and evidence of market valuation reported in financials.

Contributions

Contributions met contribution acceptance standards (member’s age, employment status, trust deed, TFN quoted).

Check for trustee minutes, bank statements, other documents evidencing contributions.

Benefit payments

Payments met the payment standards (eligibility of member, minimum benefit payments made).

Look for bank statements, ledger entries, financial statements, documents evidencing condition of release.

Exempt Current Pension Income (ECPI)

Any ECPI amount claimed is appropriate in the circumstances.

(The members and the benefit payments they received met eligibility requirements, minimum annual pension payments requirements were met, actuarial certificates were provided if required, and ECPI calculations are correct).

Check calculations and note any discrepancies. Check for actuarial certificate if one was required to be obtained.

Tax calculation

Review the tax calculation to ensure the correct amount of exempt income has been identified and that the income has been correctly treated for tax purposes.

Consider if non-arm’s length income has been included or should be included.

Deductions claimed

Expenses incurred by the fund and payment has been provided.

Check expense summaries, copies of invoices, bank statements and ledger transactions.

Income

Non-arm’s length income identified.

Check for sourcing documents such as lease agreements, loan agreements, bank confirmations, bank statements, income statements (trust distributions, dividends, rental statements), ledger transactions.

Independent auditor's report

Qualifications have been recorded for all identified:

• material misstatements in the financial reports
• matters about which the auditor could not obtain sufficient appropriate audit evidence
• material contraventions.  

References: section 35C of the SISA, ASA 700, ASA 705, ASAE 3100 and ASAE 3000.

Auditor / actuary contravention report (ACR)

An ACR has been lodged within 28 days of completing the audit for all reportable contraventions that meet the ACR reporting criteria.

Reference: section 129 of the SISA.

Written advice to the trustees

The trustee has been informed in writing of all identified contraventions.

Reference: section 129 of the SISA.