2. The audit of a self managed superannuation fund · Appendix 2A – Example audit engagement letter for the audit of a Self-Managed Superannuation Fund 2:9 Appendix 2B – Example

2. The audit of a self managed superannuation fund2. The audit of a self managed superannuation fund 2:2

Introduction to this chapter 2:2

ASIC SMSF auditor registration 2:2

Overview of the audit of an SMSF 2:2

SMSF specific methodology 2:3

Acceptance and continuance 2:3

Financial report audit 2:5

Planning 2:5

Reporting 2:6

Compliance audit 2:6

Reporting obligations for the financial statement and compliance audits 2:7

Management letter 2:7

Appendices 2:8

Appendix 2A – Example audit engagement letter for the audit of a Self-Managed Superannuation Fund 2:9

Appendix 2B – Example SMSF audit plan 2:12

Appendix 2C – Example trustee representation letter to the auditor 2:16

Appendix 2D – Example management letter template 2:19

Appendix 2E – ATO regulated superannuation funds 2:21

Appendix 2F – Example audit programs 2:22

Compliance audit 2:39

Small entities audit manual 2013

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2. The audit of a self managed superannuation fund

Introduction to this chapterThis chapter deals with the financial statement audit and compliance audit for self-managed superannuation funds (SMSF) and should be read in conjunction with Chapter 1 – Overview of audits and reviews for the financial statement audit and Chapter 5 – Overview of a compliance audit.

SMSFs are generally non-reporting entities that produce special purpose financial reports and are regulated by the Australian Taxation Office (ATO). This chapter is not applicable for the audits of APRA regulated superannuation funds.

ASIC SMSF auditor registrationASIC’s register of SMSF auditors is effective from 1 July 2013 and is part of the Australian Government’s ‘Stronger Super’ reforms to improve integrity and community confidence in the sector.

ASIC has responsibility for registering ‘approved SMSF auditors’, setting competency standards and, where appropriate, cancelling, suspending or disqualifying auditors.

Approved SMSF auditors will have ongoing obligations under section 128F of the Superannuation Industry (Supervisory) Act 1993 to comply with the competency standards set by ASIC. Auditors are also required by the legislation to comply with the auditing standards issued by the Auditing and Assurance Standards Board.

Any auditor who wishes to sign off SMSF audit reports from 1 July 2013 must register with ASIC, applications should be made by 30 April 2013. A detailed timeframe is available on the ASIC website. In order to be registered, SMSF auditors must meet minimum education, experience and competency requirements as well as maintaining professional indemnity insurance.

Existing approved SMSF auditors are able to apply for registration under transitional arrangements between 31 January 2013 and 30 June 2013, which may exempt them from some registration requirements.

ASIC has published Regulatory Guide 243 Registration of self-managed superannuation fund auditors and Class Order (CO 12/1687) which provide more information on the requirements for an SMSF auditor.

Guidance Statement (GS 009) – Auditing self managed superannuation funds was issued by the AUASB in August 2011 (refer CPA Australia Members’ Handbook and AUASB website), this chapter has been written with regard to the recommendations and guidance of GS 009 and other professional statements and standards current at the time of writing.

Overview of the audit of an SMSFSuperannuation funds are governed by the requirements of the Superannuation Industry (Supervision) Act 1993 (SISA) and the Superannuation Industry (Supervision) Regulations 1994 (SISR).

Section 35C of the SIS Act requires all superannuation funds, regardless of size or type, to be audited on an annual basis. The audit has two components:

• the audit of the financial report – to enable the auditor to form an opinion as to the fair presentation of the financial report in accordance with stated accounting policies. This component of the audit is conducted in accordance with Australian Auditing Standards.

• the compliance audit – to enable the auditor to form an opinion as to the trustees’ compliance with specified requirements of the SISA and the SISR. This compliance audit is conducted in accordance with the Australian Standards on Assurance Engagements.

The auditor is required to provide an audit report using the ATO approved form which covers both the financial statement and compliance components of the audit. The auditor’s obligation to consider compliance with the SIS Act and SIS Regulations is restricted to those sections and regulations specified in the approved form of the audit report (see Appendix 2E).

An SMSF audit report is not required to be lodged with the SMSF Annual Return. However, details of qualified audit reports or compliance breaches must be provided. In addition auditors of self managed superannuation funds have additional reporting requirements, directly to the ATO.


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Definition of an SMSF

Section 17A of the SISA sets out the definition of an SMSF which generally has the following characteristics:

a) it has fewer than five members;

b) each individual trustee or director of the corporate trustee is a member of the fund, unless it is a single member fund, in which case the sole member is either:

i. a director of the corporate trustee or one of two directors who are related; or

ii. one of two individual trustees of whom the additional trustee may be anyone apart from an employee of the member, unless the employee is related;

c) each member of the fund is a trustee or a director of the corporate trustee;

d) no member is an employee of another member, unless they are relatives; and

e) no trustee, or director of a corporate trustee, receives remuneration for any duties or services performed by the trustee or director in relation to the fund.

SMSF specific methodologyChapter 1 and Chapter 5 of this guide provide details of the generic methodology for the audits, any SMSF specific requirements have been documented in the relevant phase below.

Acceptance and continuance

Who can audit an SMSF?

Prior to 1 July 2013

An SMSF audit must be performed by an approved audit, who is an individual who is currently:

• a registered company auditor, or

• a member of CPA Australia, or

• a member of the Institute of Chartered Accountants in Australia, or

• a member of the Institute of Public Accountants, or

• a fellow or member of the Association of Taxation and Management Accountants, or

• a fellow of the National Tax and Accountants Association Ltd, or

• a SMSF specialist auditor for the SMSF Professionals Association of Australia Ltd, or

• the Auditor-General of the Commonwealth, or a state or territory.

After 1 July 2013

A SMSF audit must be performed by an ASIC registered auditor, known as an approved SMSF auditor, see information above.

Competency requirements

In view of market growth in the area of SMSFs and consultation with the regulator, CPA Australia in a joint initiative with the other professional accounting bodies, developed a set of competency requirements for auditors of SMSFs.

Members who are auditing SMSFs must meet the following professional standards requirements:

• hold a practicing certificate issued by the professional accounting body of which they are a member (CPA Australia, the Institute of Chartered Accountants in Australia or the Institute of Public Accountants);

• have continuing professional indemnity cover;

• meet the ongoing continuing professional development requirements;

• ensure that those who undertake work on their behalf have appropriate knowledge and experience, and are properly supervised in the conduct of the audit.

In addition to having one of the above qualifications, the auditor must demonstrate competencies in each of the following areas:

• acceptance and retention of clients;

• planning the engagement;


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• evaluating controls and testing these controls;

• substantive procedures;

• forming an audit opinion.

The SMSF competency requirements are available on the CPA Australia website and will continue to apply to members over and above the ASIC auditor registration requirements that apply from 1 July 2013.

ASIC has also introduced competency standards for approved SMSF Auditors (ASIC Class Order 12/1687), which are substantially based on the CPA Australia requirements. ASIC will be monitoring compliance with these standards from 1 July 2013.

Auditor independence

As part of the new SMSF auditor registration regime, the SIS Regulations now prescribe the requirements of APES110, the code of ethic for professional accountants, to apply to all approved SMSF auditors. Auditors will also be required to declare on the SMSF independent auditors report that they have met these requirements.

The Accounting Professional and Ethical Standards Board has been tasked with providing guidance on how the requirements of APES 110 apply to SMSF audit engagements and the Joint Accounting Bodies have released a revised edition of the Independence Guide: <cpaaustralia.com.au/cps/rde/xbcr/cpa-site/independence-guide.pdf>, with a much greater focus on SMSF audits.

The Auditing and Assurance Standards Board has also provided guidance through Appendix 6 of Guidance Statement, GS 009, which covers threats to independence in a SMSF.

The Appendix sets out various scenarios and safe guards that may be available to the Auditor in a given situation. Safeguards within the SMSF may be limited, as by its very nature, a SMSF is a small entity with limited scope for segregation of duties.

Assisting an audit client in the preparation of accounting records or financial reports may create a self-review threat when those records and reports are subsequently audited by the same firm. If the firm’s staff also make management decisions for the SMSF, which may occur if the firm is providing administrative services to the SMSF, there are no safeguards available to reduce the self-review threat to an acceptably low level, other than withdrawal from either the administration or the audit engagement.

If, however, the accounting services provided are of a routine or mechanical nature, such as posting transactions and entries approved by the SMSF or preparing the financial report based on a trial balance provided by the SMSF, the self-review threat may be reduced to an acceptably low level by applying safeguards, including:

• Making arrangements so accounting services are not performed by a member of the audit team.

• Implementing policies and procedures to prohibit the individual providing such services from making any managerial decisions on behalf of the SMSF.

• Requiring the source data for the accounting entries to be originated by the SMSF.

• Requiring the underlying assumptions to be originated and approved by the SMSF.

• Obtaining the SMSF’s approval for any proposed journal entries or other changes affecting the financial report.

• Obtaining the SMSF’s acknowledgement of their responsibility for the accounting work performed by the firm.

• Disclosing to the trustees the firm’s involvement in both engagements.

Provision of taxation services to a SMSF which is also an audit client would not generally create a threat to independence.

Timing of auditor appointment

The trustees are required to appoint the auditor at least 30 days prior to the date that the auditor’s report is due.

Engagement letter

The audit engagement letter should set out clearly the auditor’s reporting responsibilities for both components of the audit; an example audit engagement letter can be found in Appendix 2A to this chapter.


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Financial report audit

Planning

Understanding the business

In conducting a SMSF audit, the auditor obtains a preliminary understanding of the SMSF, including the:

• trust structure;

• nature of its investments and administration;

• parties involved in the management and trusteeship of the SMSF; and

• related parties of the trustees and members.

In gaining this preliminary understanding of the SMSF, the auditor reviews the current trust deed to verify whether:

a) The trust deed was properly executed.

b) The SMSF has current and appropriately empowered trustees.

c) The SMSF was established with either a corporate trustee, individual trustees or to pay a pension.

d) The trust deed complies with or has a mechanism to comply with the SISA and SISR and changes thereto.

e) The powers to accept contributions and pay benefits, in the form permitted by the SISA and SISR, are included.

A comprehensive list of considerations for examining the SMSF’s trust deed is included in Appendix 4 of GS009.

SMSFs are often small entities, with a close and related membership where control is vested in a few individuals. There may be little or no opportunity for implementing proper segregation of duties in these circumstances. Consequently, the auditor may assess the SMSF’s control environment and compliance framework as ineffective, in which case the auditor will be unable to rely on the effectiveness of the internal controls to reduce substantive testing.

As a result, the auditor may design and perform further audit procedures which are primarily or entirely substantive procedures.

Under ASA 250, the auditor is required to consider whether the SMSF has breached the SISA or SISR previously and whether there is any outstanding correspondence or unresolved issues with the ATO. Any such matters identified will impact on the risk assessment and the auditor’s assessment of the compliance framework.

SMSFs may use service organisations to provide services such as investment management services including:

• Custody.

• Asset management (including Hedge fund management and Private Equity).

• Property management.

• Superannuation member administration.

• Investment administration, including fund accounting and/or fund administration.

• Registry.

Where this is the case, this will have an impact on the response to the risks identified – see Chapter 1 and the auditor should look at the controls prevailing at the administrator.

Identification of risk

The major risk areas to consider when auditing SMSFs are:

• investments (ensuring their existence, ownership, correct valuation, representation and timing);

• contributions (ensuring they are calculated correctly, have the appropriate preservation status, are properly allocated to members in the appropriate period and treated correctly for tax purposes);

• benefits (ensuring the correct calculation of amounts paid in accordance with the trust deed and ensuring no unrecorded benefits are payable);

• revenue (ensuring that revenue is being accounted for in accordance with the stated accounting policies).


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Communication with third parties

In order to understand the business and obtain sufficient appropriate audit evidence, the auditor may be required to communicate with a number of third parties, including actuaries, fund administrators and investment managers. It is important to coordinate the timing of this communication so that all background information can be assessed before determining the nature, timing and extent of audit procedures.

Other information such as confirmation of investments will be required at year end.

Planning memorandum

In addition to the information included in chapter 1, the following specific SMSF details should be documented in the audit plan.

The response to the risks identified (i.e. the procedures to be performed), the nature, timing and extent of which depends on factors such as:

• The size and complexity of the SMSF.

• Whether the SMSF was a complying fund in prior years.

• Whether the SMSF is a defined benefit or accumulation fund.

• The level of trustee involvement and knowledge of the operations of the SMSF.

• Whether the SMSF is self-administered or administered by a third party service organisation.

• The nature and range of investments held and whether they are internally or externally managed.

• The availability of service auditor’s reports for services provided by service organisations.

• Whether the employer-sponsor is also a client of the firm preparing the accounts or the auditor.

• The potential and any known previous compliance issues.

• The due date for lodgement of the SMSF’s Annual Return to the ATO.

Annual review of the audit plan is necessary to ensure that it is updated to reflect the current circumstances of the SMSF and any changes in legislation that may affect the SMSF.

A sample audit plan is provided in Appendix 2B to this Chapter.

Reporting

Financial information to be prepared and basis for preparation

Most SMSFs will be required to prepare a statement of financial position and an operating statement.

The inclusion of a statement by the trustee is recommended, although it is not mandatory.

Minimum mandatory financial statement disclosure requirements are as follows (APES 205):

• a statement that the financial statements are special purpose financial statements;

• a statement of specific purpose for which the financial statements have been prepared;

• a statement of the significant accounting policies adopted in preparing and presenting the financial statements.

The measurement of assets at net market value may be required under the trust deed. It is the opinion of the ATO that SMSF assets should be valued at their current market value (refer NAT 11375-01.2010).

Compliance audit

Objective

The relevant auditing standards for the SMSF compliance audit are:

• ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information;

• ASAE 3100 Compliance Engagements.

Guidance on the application of these standards is provided in Chapter 4 of this guide.

The objective of the compliance audit is to form an opinion on the following five main areas:

• The fund meets the definition of an SMSF and has elected to be a regulated fund (SISA s17A).

• The fund is maintained for the sole purpose of providing benefits to fund members upon their retirement, or to their dependents in the case of the member’s death before retirement (SISA s62).


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• The trustees have an investment strategy and complies with the investment restrictions (SISR. 4.09).

• The trustees adhere to contribution and benefit payment standards, and (SISR 6.17 and 7.04).

• The trustees carry out their administrative obligations (SISR s103).

There is the risk in the compliance audit that there has been a breach of the SIS Act requirements which is not detected by the auditor. It is important that the audit procedures are planned so they cover the entire financial period and test compliance with the relevant SIS legislation requirements.

The Appendix to the Audit Report (Appendix 2E) provides a summary of the sections of the SISA and SISR reported on in the Auditors Report.

The sections and regulations of the SIS legislation listed in the audit report represent the minimum audit requirements for compliance. The auditor can expand the scope of the audit as he or she deems appropriate, based on audit risk and other factors. The scope of the audit (financial and compliance) should be agreed with the trustees of the SMSF before the audit.

Reporting obligations for the financial statement and compliance auditsThe auditor is required under the SISA to:

a) provide an auditor’s report on the SMSF’s operations for the year to the trustees in the approved form (see Appendix 2E);

b) report in writing to a trustee, if the auditor forms the opinion in the course of or in connection with the performance of the audit of the SMSF, that:

i. any contraventions of the SISA or SISR, may have occurred, may be occurring or may occur in relation to the SMSF (section 129 of the SISA); or

ii. the financial position of the SMSF may be, or may be about to become, unsatisfactory (section 130 of the SISA); and

c) report in writing to the ATO using the approved form Auditor/actuary contravention report (ACR) and instructions (ACR instructions), if the auditor forms the opinion in the course of or in connection with the performance of the audit of a SMSF, that:

i. it is likely that a contravention, may have occurred, may be occurring or may occur, of the requirements of the SISA or SISR, specified by the ATO in the ACR, which meet the tests specified in the ACR instructions (section 129 of the SISA); or

ii. the financial position of the SMSF may be, or may be about to become, unsatisfactory (section 130 of the SISA).

An audit contravention report (NAT 11299-06.2012) has been developed by the ATO and is located on the ATO website.

An auditor checklist to assist in reporting obligations can be found in the document Approved auditors and self-managed super funds – Role and responsibilities as an approved auditor (NAT 11375-01.2013). This ATO guide outlines the responsibilities of approved auditors of SMSFs under the SIS Act and the SIS Regulations, and explains what the ATO expects of auditors in conducting audits.

If a fund is established on or after 1 July 2008 and has a reportable contravention in its first 15 months of operation, the auditor is required to report this to the ATO, regardless of the amount involved. This helps to ensure new trustees are made aware of their obligations and responsibilities at an early stage.

Management letterTrustees should be provided with a management letter detailing the findings and implications of the audit.

This letter should include details of all contraventions of the SIS Act and SIS Regulations and appropriate recommendations for courses of action to be taken by the trustees.

It should also document identified weaknesses in internal controls that are not necessarily breaches of the SIS Act or SIS Regulations but would provide the trustees with improvements to their administrative procedures or systems.


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AppendicesThe following appendices contain example documents for use in the financial statement and compliance audits of a Self-Managed Superannuation Fund (SMSF).

Appendix 2A – Example audit engagement letter.

Appendix 2B – Example SMSF audit plan.

Appendix 2C – Example trustee representation letter.

Appendix 2D – Example management letter template.

Appendix 2E – ATO regulated audit report.

Appendix 2F – Example audit programs.


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Appendix 2A – Example audit engagement letter for the audit of a Self-Managed Superannuation FundThe following example audit engagement letter from Appendix 1 of GS009 is for use as a guide only and may need to be modified according to the individual requirements and circumstances of each engagement.

The section references under the objective of the auditor should be confirmed to the latest ATO Audit Report.

The ATO is of the opinion that these letters should be provided annually.

[Date]

[The Trustees/Directors of the Corporate Trustee]

[SMSF name]

[Address]

To [the Trustees/Directors of the Corporate Trustee] of [SMSF name]

The objective and scope of the audit

You have requested that we audit the [SMSF name]’s (the Fund):

1. financial report, which comprises the [statement of financial position/statement of net assets] as at [date] and the [operating statement/statement of changes in net assets] for the [period] then ended and the notes to the financial statements; and

2. compliance during the same period with the requirements of the Superannuation Industry (Supervision) Act 1993 (SISA) and SIS Regulations (SISR) specified in the approved form auditor’s report as issued by the ATO, which are sections 17A, 35A, 35B, 35C(2), 52(2)(d), 52(2)(e), 62, 65, 66, 67, 67A, 67B, 69-71E, 73-75, 80-85, 103, 104A, 109 and 126K of the SISA and regulations 1.06(9A), 4.09, 4.09A, 5.03, 5.08, 6.17, 7.04, 13.12, 13.13, 13.14, and 13.18AA of the SISR.

We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter. Our audit will be conducted pursuant to the SISA with the objective of our expressing an opinion on the financial report and the fund’s compliance with the specified requirements of the SISA and SISR.

The responsibilities of the auditor

We will conduct our financial audit in accordance with Australian Auditing Standards and our compliance engagement in accordance with applicable Standards on Assurance Engagements, issued by the Auditing and Assurance Standards Board (AUASB). These standards require that we comply with relevant ethical requirements relating to audit and assurance engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement and that you have complied, in all material respects, with the specified requirements of the SISA and SISR.

The annual audit of the financial reports and records of the Fund must be carried out during and after the end of each year of income. In accordance with section 35 of the SISA, we are required to provide to the trustees of the Fund an auditor’s report in the approved form within the prescribed time as set out in the SISR, being a day before the latest date stipulated by the ATO for lodgement of the fund’s Annual Return.

Financial audit

A financial audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. A financial audit also includes evaluating the appropriateness of the financial reporting framework, accounting policies used and the reasonableness of accounting estimates made by the trustees, as well as evaluating the overall presentation of the financial report. Due to the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatements may remain undiscovered.

In making our risk assessments, we consider internal controls relevant to the fund’s preparation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the fund’s internal controls. However, we expect to provide you with a separate letter concerning any significant deficiencies in the fund’s system of accounting and internal controls that come to our attention during the audit of the financial report. This will be in the form of a trustee letter.


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Compliance engagement

A compliance engagement involves performing audit procedures to obtain audit evidence about the fund’s compliance with the provisions of the SISA and SISR specified in the ATO’s approved form auditor’s report.

Our compliance engagement with respect to investments includes determining whether the investments are made for the sole purpose of funding members’ retirement, death or disability benefits and whether you have an investment strategy for the fund, which gives due consideration to risk, return, liquidity and diversification. Our procedures will include testing whether the investments are made for the allowable purposes in accordance with the investment strategy, but not for the purpose of assessing the appropriateness of those investments to the members.

The responsibilities of the trustees

We take this opportunity to remind you that it is the responsibility of the trustees to ensure that the fund, at all times, complies with the SISA and SISR as well as any other legislation relevant to the fund. The trustees are also responsible for the preparation and fair presentation of the financial report.

Our auditor’s report will explain that the trustees are responsible for the preparation and the fair presentation of the financial report and for determining that the accounting policies used are consistent with the financial reporting requirements of the SMSF’s governing rules, comply with the requirements of SISA and SISR and are appropriate to meet the needs of the members. This responsibility includes:

• Establishing and maintaining controls relevant to the preparation of a financial report that is free from misstatement, whether due to fraud or error. The system of accounting and internal control should be adequate in ensuring that all transactions are recorded and that the recorded transactions are valid, accurate, authorised, properly classified and promptly recorded, so as to facilitate the preparation of reliable financial information. This responsibility to maintain adequate internal controls also extends to the Fund’s compliance with SIS including any Circulars and Guidelines issued by a relevant regulator to the extent applicable. The internal controls should be sufficient to prevent and/or detect material non-compliance with such legislative requirements.

• Selecting and applying appropriate accounting policies.

• Making accounting estimates that are reasonable in the circumstances.

• Making available to us all the books of the Funds, including any registers and general documents, minutes and other relevant papers of all Trustee meetings and giving us any information, explanations and assistance we require for the purposes of our audit. Section 35C(2) of SIS requires that Trustees must give to the auditor any document that the auditor requests in writing within 14 days of the request.

As part of our audit process, we will request from the trustees written confirmation concerning representations made to us in connection with the audit.

Our audit report is prepared for the members of the Fund and we disclaim any assumption of responsibility for any reliance on our report, or on the financial report to which it relates, to any person other than the members of the fund, or for any purpose other than that for which it was prepared.

Independence

We confirm that, to the best of our knowledge and belief, the engagement team meets the current independence requirements of the Code of Ethics for Professional Accountants, as issued by the Accounting Professional & Ethical Standards Board in relation to the audit of the fund. In conducting our financial audit and compliance engagement, should we become aware that we have contravened the independence requirements, we shall notify you on a timely basis.

Report on matters identified

Under section 129 of the SISA, we are required to report to you in writing, if during the course of, or in connection with, our audit, we become aware of any contravention of the SISA or SISR which we believe has occurred, is occurring or may occur. Furthermore, you should be aware that we are also required to notify the Australian Taxation Office (ATO) of certain contraventions of the SISA and SISR that we become aware of during the audit, which meet the tests stipulated by the ATO, irrespective of materiality of the contravention or action taken by the trustees to rectify the matter. Finally, under section 130, we are required to report to you and the ATO if we believe the financial position of the Fund may be, or may be about to become unsatisfactory.

You should not assume that any matters reported to you, or that a report that there are no matters to be communicated, indicates that there are no additional matters, or matters that you should be aware of in meeting


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your responsibilities. The completed audit report may be provided to you as a signed hard copy or a signed electronic version

Compliance program

The conduct of our engagement in accordance with Australian Auditing Standards and applicable Standards on Assurance Engagements means that information acquired by us in the course of our engagement is subject to strict confidentiality requirements. Information will not be disclosed by us to other parties except as required or allowed for by law or professional standards, or with your express consent. Our audit files may, however, be subject to review as part of the compliance program of a professional accounting body or the ATO. We advise you that by signing this letter you acknowledge that, if requested, our audit files relating to this audit will be made available under these programs. Should this occur, we will advise you. The same strict confidentiality requirements apply under these programs as apply to us as your auditor.

Limitation of liability

As a practitioner/firm participating in a scheme approved under Professional Services Legislation, our liability may be limited under the scheme.

Fees

We look forward to full co-operation with [you/your administrator] and we trust that you will make available to us whatever records, documentation and other information are requested in connection with our audit.

[Insert additional information here regarding fee arrangements and billings, as appropriate.]

Other

This letter will be effective for future years unless we advise you of its amendment or replacement, or the engagement is terminated.

Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangements for our financial audit and compliance engagement of the [SMSF name].

[Insert here or attach any additional matters specific to the engagement, such as business terms and conditions, as appropriate.]

Yours faithfully,

_____________________________________ _____________

[Name and Title] [Date]

Acknowledged on behalf of the trustees of [SMSF name] by (signed).

_____________________________________ _____________

[Name and Title] [Date]


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Appendix 2B – Example SMSF audit plan

Audit strategy and plan

Client: Balance date:

Prepared by: Reviewed by:

Preparation date: Review date:

Fund name:

1. Audit team

Partner: Staff:

Manager:

Include information about the supervision of staff/review of work and other information about responsibilities:

2. Fund information

ABN/TFN if corporate trustee:

Trustee/s:

Primary contact:

Address:

Phone: Email:

Fund member 1: Fund member 2:

Fund member 3: Fund member 4:

3. Fund details

Trust Deed commencement date: ❏ Original ❏ Amended

Where the deed has been amended, note the changes from the prior version:

Type of fund: ❏ Accumulation ❏ Defined

Investment strategy of the fund:

Major assets/investments held:

Other pertinent facts about the fund: (e.g. the level of involvement of the trustees)

Outsourcing of any operations?

Are service audit reports available for these outsourced functions?


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4. Prior period issues or changes

Identify any prior period issues or changes:

5. Audit scope

Services to be provided:

Audit completion due date: Fund lodgement due date:

Signed engagement letter?

Other requirements:

6. Legislative and regulatory change

Identify any legislative or regulatory changes (SIS, tax, other):

7. Independence Yes No

Consider and identify any independence or ethical issues in accepting this appointment

7.1 Does the firm prepare the financial statements of the fund?

If yes, identify the person responsible for preparation

7.2 Are the Trustees related to the fund Auditor?

7.3 Is the Trustee a significant client of the firm?

7.4 Does the firm provide investment advice to the Trustee?

7.5 Is there any evidence that the Trustee has significant influence on the auditor of firm?

7.6 Comments and conclusion (for any ‘yes’ answers)


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8. Risk assessment L M H

Document business risks and determine whether the likelihood/significance of the risk is low, medium or high

8.1 Fraud risk (in particularly consider revenue recognition)

Provide an explanation for the assessment:

8.2 Investments held by the fund (in particular consider existence, ownership and valuation)


8.3 Contributions (ensuring they are calculated correctly, have the appropriate preservation status, are properly allocated to members in the appropriate period and treated correctly for tax purposes)


8.4 Benefits (ensuring the correct calculation of amounts paid in accordance with the trust deed and ensuring no unrecorded benefits are payable)


8.5 Revenue (ensuring that revenue is being accounted for in accordance with the stated accounting policies)


8.6 Risk that a breach of the SIS Act requirements has occurred


9. Control assessment – document the Auditor’s understand of the control environment and the controls in place at the fund


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10. Materiality

Materiality levels for audit: $

Rationale:

11. Audit approach – response to identified risks (provide approach about any controls/systems reliance and the approach for the risks identified) – consider nature, extent, timing and resources

12. Sign-off

I confirm the audit plan and proposed approach is appropriate for the audit, based on the risks identified, understanding of the fund and systems and controls assessment.

___________________________________

[Audit partner]

_______________________________________

[Signed]

________________

[Date]


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Appendix 2C – Example trustee representation letter to the auditorThis illustrative letter from Appendix 2 of GS009 is provided as an example only and may need to be modified according to the individual requirements and circumstances of each engagement. Representations by the trustees will vary between SMSFs and from one period to the next.

This letter assumes that the Fund is non-reporting and therefore is preparing special purpose financial statements.

The SISA and SISR section numbers included in this letter should be agreed to the latest ATO audit report prior to use of this letter.

[SMSF letterhead]

[Date]

[Addressee – Auditor]

Dear [Sir/Madam],

Trustee Representation Letter

This representation letter is provided in connection with your audit of the financial report of the [name of SMSF] (the Fund) and the Fund’s compliance with the Superannuation Industry (Supervision) Act 1993 (SISA) and SIS Regulations (SISR), for the [period] ended [date], for the purpose of you expressing an opinion as to whether the financial report is, in all material respects, presented fairly in accordance with the accounting policies adopted by the Fund and the Fund complied, in all material respects, with the relevant requirements of SISA and SISR.

The trustees have determined that the Fund is not a reporting entity for the [period] ended [date] and that the requirement to apply Australian Accounting Standards and other mandatory reporting requirements do not apply to the Fund. Accordingly, the financial report prepared is a special purpose financial report which is for distribution to members of the Fund and to satisfy the requirements of the SISA and SISR. We acknowledge our responsibility for ensuring that the financial report is in accordance with the accounting policies as selected by ourselves and requirements of SISA and SISR, and confirm that the financial report is free of material misstatements, including omissions.

We confirm, to the best of our knowledge and belief, the following representations made to you during your audit.

1. Sole purpose test

The Fund is maintained for the sole purpose of providing benefits for each member on their retirement, death, termination of employment or ill-health.

2. Trustees are not disqualified

No disqualified person acts as a director of the trustee company or as an individual trustee.

3. Trust deed, trustees’ responsibilities and fund conduct

The Fund meets the definition of a self-managed superannuation fund under SISA, including that no member is an employee of another member, unless they are relatives and no trustee [or director of the corporate trustee] receives any remuneration for any duties or services performed by the trustee [or director] in relation to the fund.

The Fund has been conducted in accordance with its constituent trust deed at all times during the year and there were no amendments to the trust deed during the year, except as notified to you.

The trustees have complied with all aspects of the trustee requirements of the SISA and SISR.

The trustees are not subject to any contract or obligation which would prevent or hinder the trustees in properly executing their functions and powers.

The Fund has been conducted in accordance with SISA, SISR and the governing rules of the Fund.

The Fund has complied with the requirements of the SISA and SISR specified in the approved form auditor’s report as issued by the ATO, which are sections 17A, 35A, 35B, 35C(2), 52(2)(d), 52(2)(e), 62, 65, 66, 67, 67A, 67B, 69-71E, 73-75, 80-85, 103, 104A, 109 and 126K of the SISA and regulations 1.06(9A), 4.09, 4.09A, 5.03, 5.08, 6.17, 7.04, 13.12, 13.13, 13.14 and 13.18AA of the SISR.

All contributions accepted and benefits paid have been in accordance with the governing rules of the Fund and relevant provisions of the SISA and SISR.

There have been no communications from regulatory agencies concerning non-compliance with, or deficiencies in, financial reporting practices that could have a material effect on the financial report.


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4. Investment strategy

The investment strategy has been determined with due regard to risk, return, liquidity and diversity, and the assets of the Fund are in line with this strategy.

5. Accounting policies

All the significant accounting policies of the Fund are adequately described in the financial report and the notes attached thereto. These policies are consistent with the policies adopted last year.

6. Fund books and records

We have made available to you all financial records and related data, other information, explanations and assistance necessary for the conduct of the audit; and minutes of all meetings of the trustees.

We acknowledge our responsibility for the design and implementation of internal control to prevent and detect error. We have established and maintained an adequate internal control structure to facilitate the preparation of reliable financial reports, and adequate financial records have been maintained. There are no material transactions that have not been properly recorded in the accounting records underlying the financial report.

All accounting records and financial reports have been kept for 5 years, minutes and records of trustees’ [or directors of the corporate trustee] meetings [or for sole trustee: decisions] have been kept for 10 years and trustee declarations in the approved form have been signed and kept for each trustee appointed after 30 June 2007

7. Fraud, error and non-compliance

There have been no:

a) Frauds, error or non-compliance with laws and regulations involving management or employees who have a significant role in the internal control structure that could have a material effect on the financial report.

b) Communications from regulatory agencies concerning non-compliance with, or deficiencies in, financial reporting practices that could have a material effect on the financial report.

c) Violations or possible violations of laws or regulations whose effects should have been considered for disclosure in the financial report or as a basis for recording an expense.

8. Asset form and valuation

The assets of the Fund are being held in a form suitable for the benefit of the members of the Fund, and are in accordance with our investment strategy.

Investments are carried in the books at [insert valuation method: e.g. market value]. Such amounts are considered reasonable in light of present circumstances.

We have no plans or intentions that may materially affect the carrying values, or classification, of assets and liabilities.

There are no commitments, fixed or contingent, for the purchase or sale of long term investments.

9. Uncorrected misstatements

We believe the effects of those uncorrected financial report misstatements aggregated by the auditor during the audit are immaterial, both individually and in aggregate, to the financial report taken as a whole. A summary of such items is attached.

10. Ownership and pledging of assets

The Fund has satisfactory title to all assets appearing in the statement of [financial position/net assets]. All investments are registered in the name of the Fund, where possible, and are in the custody of the respective manager/trustee.

There are no liens or encumbrances on any assets or benefits and no assets, benefits or interests in the Fund have been pledged or assigned to secure liabilities of others.

All assets of the Fund are held separately from the assets of the members, employers and the trustees. All assets are acquired, maintained and disposed of on an arm’s length basis and appropriate action is taken to protect the assets of the Fund.


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11. Related parties

Related party transactions and related amounts receivable have been properly recorded or disclosed in the financial report. Acquisitions from, loans to, leasing of assets to and investments in related parties have not exceeded the in-house asset restrictions in the SISA at the time of the investment, acquisition or at year end.

The Fund has not made any loans or provided financial assistance to members of the Fund or their relatives.

12. Borrowings

The Fund has not borrowed money or maintained any borrowings during the period, with the exception of borrowings which were allowable under SISA.

13. Subsequent events

No events or transactions have occurred since the date of the financial report, or are pending, which would have a significant adverse effect on the Fund’s financial position at that date, or which are of such significance in relation to the Fund as to require mention in the notes to the financial statements in order to ensure they are not misleading as to the financial position of the Fund or its operations.

14. Outstanding legal action

The trustees confirm that there is no outstanding legal action or claims against the Fund.

There have been no communications from the ATO concerning a contravention of SISA or SISR which has occurred, is occurring, or is about to occur.

15. Additional matters

[Include any additional matters relevant to the particular circumstances of the audit, for example:

• the work of an expert has been used; or

• justification for a change in accounting policy.]

We understand that your examination was made in accordance with Australian Auditing Standards and applicable Standards on Assurance Engagements and was, therefore, designed primarily for the purpose of expressing an opinion on the financial report of the Fund taken as a whole, and on the compliance of the Fund with specified requirements of SISA and SISR, and that your tests of the financial and compliance records and other auditing procedures were limited to those which you considered necessary for that purpose.

Yours faithfully,

______________________________________

[Name of director/trustee]

______________________________________

[Name of director/trustee]

_______________

[Date]


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Appendix 2D – Example management letter template

[Date]

[The Trustees/Directors of the Corporate Trustee]

[SMSF NAME]

[address]

Dear [Trustee(s) name]

[SMSF Name] SUPERANNUATION FUND

We have completed the audit of the [SMSF name] superannuation fund (the fund) for the financial year ended 30 June [year].

We wish to report to you the following matters arising from our audit:

1. Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) breaches

No contraventions of the SIS Act were identified during our Audit

or

The following breaches of the SIS Act were identified in the conduct of our Audit:

Breach Event Breach detected Relevant SIS legislation

Has breach been rectified

Reportable contravention

1. Details of event Details of breach detected

Relevant section breached

Rectified as at or

Not rectified

No

Yes

2. Material audit adjustments

No material audit adjustments were identified/carried out during our Audit;

or

The following material audit adjustments were identified/carried out during our Audit.

3. Matters for Trustee attention

In the course of our audit, we did not detect any instances of Non Compliance;

or

In the course of our audit, we identified the following instances of Non Compliance:

Breach Suggested actions

1. Set out the suggested action required by the trustees.

4. Further matters for your review

We did not identify any significant administration issues in the conduct of our Audit;

or

The following administration issues were identified in the conduct of our Audit and recommend as follows:

Issue Matter Recommendation

1. Identify matters for review

Set out recommended action/changes to be recommended.


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This report is prepared on the basis of the limitations set out below.

The matters raised in this report are only those that came to our attention during the course of our audit and are not necessarily a comprehensive statement of all the weaknesses that exist or improvements that might be made.

We cannot, in practice, examine every activity and procedure, nor can we be a substitute for management’s responsibility to maintain adequate controls over all levels of operations and their responsibility to prevent and detect irregularities, including fraud.

Accordingly, management should not rely on our report to identify all weaknesses that may exist in the systems and procedures reviewed, or potential instances of fraud that may exist. Our comments should be read in the context of the scope of our work. Findings within this report may have been prepared on the basis of management representations.

This report has been prepared solely for your use as management of [SMSF name] and should not be quoted in whole or in part without our prior written consent. No responsibility to any third party is accepted as the report has not been prepared, and is not intended, for any other purpose.

Should you have any questions in relation to the above matters, please do not hesitate to contact [name of auditor] on telephone number [telephone number].

Yours sincerely

______________________________________

[Name of auditor]

Audit Partner


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Appendix 2E – ATO regulated superannuation funds

Self managed superannuation fund independent auditor’s report

It is the responsibility of the auditor to ensure they are using the most recent audit report format required by the ATO: <www.ato.gov.au>. The most current version of this report at the time of writing is ATO NAT11466.07.2012 effective from 1 July 2012 – this report is updated annually and therefore you should check the ATO website for the latest version.


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Appendix 2F – Example audit programsThese suggested procedures should be reviewed and adapted for the specific circumstances and audit risks associated with each superannuation fund audit engagement. It should also be noted that changes will be necessary when reliance is placed on internal controls. No allowance has been made for materiality or extent of testing.

The procedures are segregated into the two audit components:

• Audit of the financial report – these programs assume that the fund is not a defined benefit fund.

• Compliance audit.

Audit of the financial report

Ref Test Performed by W/P

A Engagement acceptance and continuance

1. Confirm that the appropriate procedures relating to new and ongoing engagements have been completed prior to commencing the audit, including:

• Clearance from the previous auditor on new engagements;

• Confirmation of independence of the engagement partner, audit firm and each audit team member.

2. Has a current engagement letter been issued and returned?

B Planning

1. Obtain the most up-to-date:

• trust deed and amendments;

• fund summary (where available)

2. Has the trust deed been amended since our last audit?

If so, perform the following:

• ensure the deed amendment has been properly executed;

• consider obtaining confirmation of deed compliance with relevant SIS and CA regulations from solicitor or other party involved in the amendment;

• ensure you are familiar with the provisions of the new deed (using Appendix 4 of GS009).

3. Obtain copies of minutes of trustees’ meetings and any committees. Document any matters that may impact our audit:

• of the financial statements;

• of SIS Act and SIS Regulations compliance.

4. Determine whether:

• there are any outstanding requests from regulatory bodies;

• there are any issues which are currently being considered by regulatory bodies, e.g. the ATO;

• a notice of non-compliance has been issued by any regulatory bodies.


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5. Complete a risk assessment and determine preliminary materiality levels, covering:

• Risk assessment

+ Current period events.

+ Fraud risks.

+ Control environment.

+ Computer/IT environment.

+ Compliance environment.

• Materiality

+ Financial audit.

+ Compliance engagement.

The results of this should be documented in the audit plan.

6. Understand the control environment

Gain an understanding and assess the effectiveness of the client’s control environment particularly in the following areas:

• control over the use of authorised cheque signatories;

• authorisation of benefit requests;

• authorisation of redemption of investments;

• reconciliation of investments;

• processing and allocation of contributions.

7. Fraud

Consider the potential of fraud

Two types of fraud are relevant to financial statement audits:

1. fraudulent financial reporting;

2. misappropriation of assets.

Document the fraud risk factors in place at the entity.

Review journals for unusual/large amounts:

• Consider whether business conditions and the client’s key executives’/trustees’ motivations create an environment that is conducive to fraud.

• Consider incentives/pressures and opportunities for management or employees.

• Consider management or employee attitudes towards the internal control environment.

This should be done at fund level and at individual application/process level.


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8. Audit plan

Prepare an audit plan (which incorporates the audit strategy) for this engagement addressing, as a minimum, the following matters:

• Client profile, audit and reporting arrangements.

• Audit approach:

+ Nature:

– Controls testing, including use of service organisations’ controls reports;

– Substantive testing – inspection, observation, enquiry, confirmation, recalculation, reperformance and analytical review.

+ Timing.

+ Extent – fully substantive, sampling, analytical review or representations.

+ Resources, including extent of direction and supervision.

Consider interviewing the trustees and/or their advisors, reviewing the draft financial report and the minutes prior to and during the development of the audit plan.

Statement of financial position/Balance sheet – assets

Ref Test Done by and date

W/P ref/ notes

C Cash

1. Confirm ownership of the bank accounts from the bank statement to the SMSF for each bank account held.

2. Determine whether reconciliations have been performed throughout the year, following up large, unusual or recurring reconciling items.

3. Review bank statements for the year. Has the fund had a debit balance at any time during the period?

4. Test large and unusual cash payments and receipts to ensure these are bona fide and correctly recorded and authorised.

5. Trace a selection of payments and receipts to bank statements and agree to the source documents.

6. Obtain the bank reconciliation at year end:

• investigate any large or unusual reconciling items;

• follow up uncleared deposits and unpresented cheques ensuring correct cut off.

Note that if bank reconciliations are being relied upon as a control, then an interim reconciliation should also be tested.


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W/P ref/ notes

7. Where banking activities are material to the audit and you are unable to gain sufficient, appropriate audit evidence, confirm the bank balance by way of a bank audit certificate.

Does the bank audit certificate show any evidence of the following:*

• debit account balances;

• other liabilities to the bank and security for these;

• unused limits or facilities;

• charges held over account(s).

* If you have answered yes to these questions, consider whether borrowings have been made or there are liens ver assets which may contravene SIS.

D Contributions receivable

1. Confirm the contributions receivables at the year end to the contributions income.

2. Where contributions have subsequently been received, trace the amount accrued to the remittance advice, and bank or other transaction statement.

3. Where contributions have not subsequently been received* perform alternative procedures, such as:

• confirm amount outstanding with employer-sponsor or member;

• assess for reasonableness of accrual based on the pattern of contributions in other months.

* If member contributions have not subsequently been received consider whether this contravenes the time period for remittance under SIS.

E Receivables, accrued income and other assets

1. If the SMSF uses accrual accounting, review each investment class and determine if the SMSF was entitled to receive income for the year and if this had been received or accrued at reporting date.

2. Obtain details of other receivables and other assets (e.g. prepayments) and ensure that they are correctly accounted for.

3. Verify that the receivable is current and has been received by the SMSF subsequent to period end or that it will be received by the SMSF.

4. If the amount is receivable from a related party, check that the disclosures are appropriate.

F Investments

All investments of the superannuation fund should be in accordance with the investment strategy developed under SIS, and should satisfy the provisions of the trust deed and the sole purpose test.

Where the name of the investment holder does not stipulate that the investment is held by XX (trustee) in trust for YY (superannuation fund), sight declaration of trust or other documentation to ensure ownership lies with the fund.


2:26


W/P ref/ notes

1. Obtain direct third party confirmation of the balance held on deposit at year end and ensure income from investment is correctly deposited into the funds account.

2. Check to ensure that all investments are recorded in Australian dollars and that if foreign currency transactions occur they are converted at the appropriate currency rates and accounting for correctly.

3. Does the fund offer member choice of investment strategies? If yes:

• document the procedures used by the trustee/administrator to control member choice. In particular:

+ recording that a member has made a choice;

+ how often a member may change their investment choice;

+ controls in place to ensure that the change is recorded accurately and promptly; and

+ procedures to monitor cash balances for each investment choice category and the redemption of investments for the payment of benefits.

• review the reconciliation of total member balances classified by choice category to investments similarly classified to ensure that investments held reflect member choice;

• determine if the method of allocating investment earnings to members’ balances reflects the earnings of the investment selected by the members and is equitable;

• ensure that a default strategy has been established.

4. Does the fund have a master custodian? If yes:

• obtain valuation reports at reporting date and compare to fund accounts;

• review valuation of unlisted investments and consider confirming these separately;

• obtain comfort letters from the custodian’s auditor in accordance with GS 007.

5. For investments in listed shares:

Review the number of listed securities including shares, units, instalment receipts, options, warrants and futures held by the SMSF at the end of the period. If the SMSF has units in unit trusts, obtain a listing of these and identify any unit trusts that are listed on the Australian Stock Exchange, those that are widely held trusts and those that are closely held trusts.

• Agree the number of securities held at period end to the CHESS statement issued at period year, the share or unit registry or other appropriate sources.

• Check that each listed security is owned by the trustee and is correctly and appropriately recorded as an investment of the SMSF.

• Confirm the closing market price of the securities at the period end against an independent source.


2:27


W/P ref/ notes

• Confirm that the method used to value the investments is consistent with that disclosed in the accounting policy notes.

• If the SMSF invested or redeemed listed securities during the period, trace transactions to and/or from the SMSF to confirm that they have been dealt with in an appropriate and timely manner.

6. For units in a PST:

• Obtain direct third party confirmation of unit balance and value of units (at redemption price) at year end.

• Confirm that the investment is in the correct name.

• Confirm the number of units and carrying value at period end, for investments at market value ensure that the unit price is the redemption price.

• Confirm that the method used to value the investments is consistent with that disclosed in the accounting policy notes.

7. For unit trusts:

Widely held trusts

These are usually arm’s length and professionally managed trusts that provide regular reports on unit holdings, distributions and unit prices.

• Sight the original unit certificates, a confirmation from the unit trust or similar documentation and agree:

+ The number of securities held at period end.

+ That each investment is owned by the trustee and is correctly and appropriately recorded as an investment of the SMSF.

+ The closing price of the units at the period end.

+ The method used to value the investments is consistent with that disclosed in the accounting policy notes.

+ Check if the units are valued cum or ex-distribution and that this is correctly and consistently calculated and reported.

• If the SMSF invested or redeemed units during the period, trace transactions to and/or from the SMSF to confirm that they have been dealt with in an appropriate and timely manner.

• If acquired during the year, ensure not acquired from related parties to avoid breach of section 66.

Closely held trusts

These are usually related trusts that require additional audit procedures to confirm ownership and value.

• Sight the original unit certificates, a confirmation from the unit trust or similar documentation and agree the following:

+ The number of units held at period end.

+ That each investment is owned by the trustee and is correctly and appropriately recorded as an investment of the SMSF.


2:28


W/P ref/ notes

• Identify the valuation method used and test the value by:

+ Assessing whether the method and valuation process were reasonable and the valuation is current.

+ Obtaining documentary evidence to support the valuation.

+ Verifying that the method used to value the investments is consistent with that disclosed in the accounting policy notes.

• Review the assets and liabilities of the unit trust and test for existence and valuation and allocation:

+ in the case of listed shares, by obtaining a current share certificate and a third party valuation).

+ in the case of a property, by obtaining a current title search and a third party valuation.

• If the SMSF invested or redeemed units during the period, trace transactions to and/or from the SMSF to confirm that they have been dealt with in an appropriate and timely manner.

8. For life insurance products:

• sight the life insurance policy and statement from the life office at period end;

• obtain direct third party confirmation of market value of product and obtain an actuarial valuation of insurance policy at period end;

• assess the reasonableness of the market value by reference to the assumptions used, e.g. if the policy is likely to be subject to early termination then penalties may be imposed which would affect the value of the policy;

• agree transactions on the statement to premiums paid, bonuses or benefits received in the SMSF’s records;

• ensure policy is held on life of a member and in the correct name;

• ensure policy is owned by the <<trustee>> of the SMSF.

9. For fixed interest securities:

• sight certificate for evidence of existence and ownership , date of issue and date of maturity;

• where securities are traded electronically, obtain confirmation from Austraclear/clearing house as to securities held;

• agree value of securities held at period end with quoted market prices;

• confirm that the investments are in the name of the trustee and that the documentation clearly identifies that the investment is an asset of the Fund;

• confirm that the method used to value the investment is consistent with that disclosed in the accounting policy notes.


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W/P ref/ notes

10. For funds invested in an external manager’s portfolio:

• obtain an understanding as to the terms of the agreement between the trustee and the external manager, including the extent to which responsibility is delegated to the manager;

• obtain confirmation of investments held at year end from the external manager;

• where separate records are maintained by the trustee, reconcile these to the reports produced by the investment manager to determine accuracy of contributions and benefits, and particularly to establish correct cut-off;

• where access is not available to the systems of internal control, obtain a letter of comfort from the investment manager’s auditor in respect of control over investments, allocation of income and accuracy of tax balances;

• where access is not available to the external manager’s records, obtain a report from the investment manager’s auditor in relation to specific financial statement assertions, as set out in GS 007;

• review the carrying amount of the invested funds at period end;

• confirm that the valuation method is in accordance with the funds stated accounting policy.

11. For all other investments perform the following:

• ensure the investment is in accordance with the investment strategy;

• establish ownership of the investment by reference to supporting documentation;

• review the fund’s portfolio for unusual exposure, to a particular company, class of assets, country etc.

• consider the security of the asset or investment and whether it is adequately insured.

If the asset is a type that does not have any form of title obtain evidence to confirm existence and ownership including:

• Minutes or resolution relating to the acquisition of the asset, and its use/storage in the relevant financial year.

• Invoice and evidence of payment from the SMSF for the purchase of the asset.

• Sighting asset.

• Insurance policy or premium payment for insurance of the asset.

• Lease documents, if leased to another party.

If the trustee has relied on an independent valuation, obtain a copy of this and confirm that:

• The valuation or appraisal refers to the correct SMSF.

• The valuation refers to the correct period.

• If the asset has been subsequently sold, that the sale price does not differ significantly from the valuation or appraisal.


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W/P ref/ notes

• If sold to a related party, that it was sold at market value.

• That the method used to value the property is reasonable and consistent with that disclosed in the accounting policy notes.

• The assumptions on which the valuation is based are reasonable and the valuation is current.

G Property

1. Where the fund holds property investments:

• Perform a title search and if applicable sight the title deed to ensure the title is in the name of the trustee on behalf of the fund and there are no encumbrances over this title.

• Ensure that the property is valued at net market value, at either trustee or independent valuation as stated in the accounting policies.

• If the trustees have relied on an independent market appraisal or valuation, obtain a copy of this and confirm that:

+ The value is correctly reflected in the financial report.

+ The valuation/appraisal refers to the correct property.

+ The valuation was based on reasonable assumptions and is current.

+ The valuation takes into account redemption costs.

+ The value takes into account GST (if applicable).

+ If the property has been subsequently sold, that the sale price does not differ significantly from the valuation/appraisal.

+ That the method used to value the property is consistent with that disclosed in the accounting policy notes.

• Where the property includes ‘buildings and other fixtures’ verify existence of adequate insurance and, where these are being depreciated, ensure that the depreciation adjustments are correctly and appropriately reflected in the market value and accounting policies.

• if Trustee(s) have utilised s67(4)(A) borrowings ensure that asset is held on trust for SMSF, that the asset is such an asset allowed to be held by the trustees and that the trustees have right to obtain the legal ownership of the asset by way of one, or a series of payments.


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Statement of financial position/Balance sheet – liabilities


W/P ref/ notes

H Accounts payable

1. For sundry accounts payable:

• vouch significant amounts to invoices or other supporting documentation;

• search for unrecorded liabilities through testing of subsequent payments, review of minutes etc.

2. For benefits payable, determine accuracy of recorded amounts and search for unrecorded benefits payable through testing of subsequent payments.

I Taxation

1. Is the fund a complying fund for tax purposes?

If so:

• ensure tax is provided at 15% on taxable income other than certain non-arm’s length income and private company dividends and discounted capital gains.

If not:

• ensure tax is provided at the top marginal rate for the year of income.

2. Obtain the tax work papers including the reconciliation of prima facie tax to the tax provision (including all temporary differences) if applicable, and proof of deferred tax balances, and reference all amounts back to the audit work papers.

3. Ensure assessable income is correctly calculated and includes the following, where applicable:

• employer contributions, including salary sacrifice;

• specified roll-over amounts from previously untaxed sources (post-June 1983);

• shortfall components under the Superannuation Guarantee (Administration) Act;

• member contributions, where the member has given a section 290-170 notice to the trustee (i.e. substantially self-employed persons who will claim a tax deduction for their contributions);

• capital gains on investments – where the fund can use the CGT discount method, the fund should pay tax at 10% on those gains.

Ensure the following have been properly excluded from assessable income:

• income derived from, and capital gains realised in, investments in pooled superannuation trusts;

• cash bonuses received on life insurance policies;

• in the case of funds which are liable to pay current pensions, exempt current pension income;

• pre 1 July 1988 funding credits.


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W/P ref/ notes

4. Ensure correct treatment of the following where applicable:

• imputation credits;

• foreign tax credits;

• TFN credits.

5. Ensure deductions are correctly calculated and include the following, where applicable:

• cost of death or disability benefits;

• actuarial costs;

• fees paid to auditors and advisers;

• investment management costs;

• other amounts meeting the specific superannuation and general section 8-1 conditions for deductibility.

6. Has the fund transferred its liability for tax on taxable contributions?

If so:

• obtain section 275 notice and ensure notice has been signed prior to lodgement of the tax return.

Statement of comprehensive income/Income statement – income


W/P ref/ notes

J Income

NON–CONTRIBUTIONS INCOME

1. • Calculate the SMSF’s investment return as a percentage based on the net income as a proportion of average assets held by the SMSF over the period.

• Compare this to the prior year as well as average market performance (for example, superratings) for the period of the audit and confirm that the return is reasonable and not under or overstated.

2. Vouch major items of income. For example:

• agree dividends on listed shares to dividend yield or dividend payable quoted in the Australian Financial Review or ASX report;

• confirm the accounting treatment of franking credits (either on a net or gross basis) and ascertain accounting treatment is consistent with the details disclosed in the accounting policy notes;

• trust distributions are treated correctly and have been agreed to distribution advice;

• agree interest rates to rates quoted by major banks or the rates quoted in the Australian Financial Review;

• movements in net market values of investments.


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W/P ref/ notes

CONTRIBUTIONS

1. Reconcile member and employer contributions between general ledger and transaction listings produced by the fund administrator and to employer confirmation, paying particular attention to amounts remitted at the start or end of the year to determine whether there has been correct cut off.

(Cut off may also be tested through subsequent receipts after year end.)

2. Test accuracy of contribution rates and compliance with the trust deed as follows:

• for member contributions agree to total of payroll deductions;

• for member contributions on a sample basis test amounts remitted for employees by reference to payroll records indicating members’ salaries and contribution rates;

• for employer contributions test to sponsoring employer cash payments or obtain employer confirmation;

• for employer contributions on a sample basis test for compliance with SGC, award obligations and trust deed requirements;

• for employer contributions to defined benefit funds ensure funding is in accordance with the rates recommended by the actuary;

• ensure the funding note in the financial statements accurately reflects actual contribution rates.

3. Where co-contributions have been received test that they have been allocated to the member for whom they were remitted. Ensure that the Trust Deed allows contributions from Government.

4. Test for completeness of contributions by performing the following:

• compare member contributions to previous year and assess for reasonableness in light of movements in salaries and other factors, such as changes in members;

• compare employer contributions to previous year and assess for reasonableness in terms of movements in salaries, and any changes in employer obligations arising from SGC or award legislation or actuarial recommendations;

• test movements in employee numbers by testing listing of fund members to previous year and, on a sample basis, investigate additions or omissions.

5. Where contributions have been received for members:

• ensure that their Tax File number has been recorded;

• if over 65, ensure that member has satisfied the Work Test (40 hours work over a 30 consecutive day period);

• ensure compliance with contribution cap restrictions, and age based restrictions.


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W/P ref/ notes

(Where we are also auditors of the employer sponsor consider placing reliance on the system of internal controls, particularly where compliance testing has been performed during the course of the employer sponsor’s audit. Where we are not the auditor of the employer sponsor consider whether any representation is required from the employer’s auditor as to the payroll and cash payments systems affecting contributions to the superannuation fund. Obtain direct confirmation of contributions paid and agree to remittance advices received by the fund administrator or investment manager.)

Statement of comprehensive income/Income statement – expenses


W/P ref/ notes

K Expenses

1. Perform an analytical review of expenses generally and assess for reasonableness based on our expectation, taking into account the prior year’s expenditure and strategies adopted during the year.

2. Vouch major items of expenditure to invoices or other supporting documentation. For example:

• agree administration fees to the agreement with the administrator;

• agree management fees to the agreement with the investment manager;

• movements in net market values to the change in value of investments.

3. Superannuation contribution surcharge review

Assess the trustee’s procedures for ensuring the contribution surcharge tax has been deducted from the appropriate member balances and for providing the ATO with the required information for members who have a liability but who have since left the fund.

Has the superannuation contribution surcharge been appropriately disclosed in the financial statements, where appropriate?

L Benefits

1. Lump sums

• Obtain a listing of all benefits paid and reconcile benefits paid between general ledger and bank statement.

• For each benefit paid, review documentation including correspondence to the members and rollover institutions and ensure that the benefit was duly authorised.

• Confirm that each benefit was paid in accordance with the terms of the trust deed.


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W/P ref/ notes

• Where resignation or other benefits are based on an accumulation of contributions and earnings, test reasonableness of the benefit based on the number of years of membership, contribution amounts for the member, any earnings-related contributions by the associated employer, concessional and non-concessional contributions and your knowledge of the SMSF’s earning rates and reasonableness of interim earning rate calculations. Agree member information to trust minutes and records.

• For retirement or other defined benefits check calculation is in accordance with the trust deed and agree member’s age, final average or highest average salary and years of service to payroll, personnel records or trust records.

• Ensure payment is made to authorised beneficiaries.

• Obtain minutes supporting the final payment decision.

• For death benefits, sight death certificate and confirm if the benefit was paid in accordance with the trust deed and, if applicable, a binding death benefit nomination.

• For a total and permanent disability benefit, sight the medical certification regarding the inability of the member to work again.

• For a total and temporary permanent disability benefit, sight the medical certification regarding the temporary inability of the member to work.

• For each benefit paid ensure that the PAYG obligations have been correctly calculated and remitted by the SMSF.

2. Pension payments

• Sight documentation (member request and trustee minutes confirming member’s request for pension) and trustee acknowledgement and agreement to pay pension.

• Ensure that pensions paid are within the minimum and maximum thresholds and that pensions are paid at least once annually.

• Investigate liabilities at year end to ensure that pensions have been paid, and not just accrued.

• Review the terms of the pensions to ensure that the pensions have been calculated and paid in accordance with these terms.

• Trace pension payments to bank statements.


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Other considerations


W/P ref/ notes

M Reserves

1. Does the fund maintain reserves? If so:

• ensure all movements during the period are in accordance with the fund’s reserve strategy;

• ensure trust deed allows the maintenance of reserves.

N Taxation

1. Review tax work papers to ensure that the income tax is correctly calculated and disclosed in accordance with the accounting policies, including:

• Member contributions have been treated correctly as non-assessable unless the SMSF received a notice in accordance with section 290-170 of the ITAA 1997 stating that the member contribution is assessable.

• Capital gains from the disposal of PSTs and insurance policies have been excluded from taxable income.

• Fee rebates and other income from PSTs have been excluded from taxable income.

• Income from assets used to pay current pensions is identified as not assessable and an actuarial certificate has been obtained to apportion the income, if required.

• The non-assessable pension income proportion has been correctly applied to income but not contributions.

O Completion

1. Financial statements

• Does the financial report includes an operating statement and statement of financial position.

• Do the table of contents or index agrees to the financial report, including the page numbers and content.

• Do the footnotes refer to the notes to the financial statements and do not mention compilation reports or ‘unaudited’ information.

• Is the audit report is situated appropriately in the financial report so as not to suggest that the member’s statements or other information have been audited.

• Have the assets and liabilities been presented in the broad order of the liquidity?

• Do comparatives agree to prior year audited financial statements?

• Do the financial statements add up correctly, including notes?

• Has cross referencing of notes and page numbering been checked?

• Have notes to the financial statements been audited and appropriate disclosures made?

• Have disclosures within the notes to the financial statements been prepared in accordance with accounting standards as applied by the fund?


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W/P ref/ notes

2. Opening balances – new engagements

• Review the opening balances for reasonableness.

• Check that the bank account balance from the prior year financial report agrees with the bank statement at the beginning of the audit period.

• To verify the liabilities for accrued benefits in the prior year, confirm the member’s balances have increased by the expected amounts for the current period.

3. Obtain a copy of the SMSF’s trial balance and general ledger and agree the trial balance to the financial report and note any discrepancies.

4. Review the general ledger and identify material journal entries and other adjustments and review these to ensure that they are reasonable and consistent with the financial report.

5. Accounting policies

• If the SMSF is not a reporting entity, check that the accounting policy notes reflect this, obtain an understanding of the relevant accounting policies the trustee has used to prepare the financial report and check that the accounting policy notes adequately explain the policies adopted.

• Determine if there are any changes in the accounting policies applied in prior periods, and if so, check that these been appropriately disclosed in the accounting policy notes.

6. Going concern

Review all circumstances, investments, transactions and other matters from the audit to assess if the SMSF is a going concern.

7. Subsequent events

• Identify any subsequent events which would affect the financial report of the current or future periods.

• Test receipts and payments after reporting date to ensure correct cut off of contributions, benefits, income and expenses.

• Check for significant fluctuations in investment valuations after period end.

8. Related parties

If there have been any transactions with related parties, ensure that these matters have been appropriately addressed and reported in accordance with the accounting policies adopted by the SMSF.

9. Are material commitments and contingencies properly disclosed? Review the following where applicable:

• trustee minutes;

• solicitors’ representations;

• trustees’ representations;

• contracts with investment managers.

Note: superannuation contribution surcharge has been covered in section I3.


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W/P ref/ notes

10. Has a letter of representation been obtained from the trustee documenting significant representations made to us during the audit?

See Appendix 2C for an example representation letter.

11. Have all matters of governance interest, if any, arising from the audit are communicated to the trustees on a timely basis, including:

• Uncorrected misstatements aggregated by the auditor during the audit that were determined by the trustees to be immaterial, both individually and in the aggregate, to the financial report taken as a whole.

See Appendix 2D for an example management letter template.


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Compliance audit

SIS checklist for ATO regulated funds

The following compliance checklist specifies those items relating to an SMSF that the auditor is required to report on in the approved form of audit report. This checklist is for the year ended 30 June 2012 which is the latest version available at the time of publication of this guide.

This checklist must not be used for non-self managed superannuation funds.

Electronic Superannuation Audit Tool (eSAT)

The ATO allows auditors to complete the form using the Electronic Superannuation Audit Tool (eSAT) which allows for easy completion of the Auditor Report via a series of questions. This is available on the ATO website or using the following link <http://www.ato.gov.au/superfunds/content.aspx?menuid=49580&doc=/content/00157275.htm&page=8>. The use of this tool will also allow auditors to ensure that they are using the most up-to-date version of the checklist.


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Appendix 1 – Explanation of listed sections and regulations in compliance report

Section or Regulation

Explanation

S17A The fund must meet the definition of an SMSF

S35A The trustees must keep and maintain accounting records for a minimum of five years

S35B The trustees must prepare and maintain proper accounting records

S35C(2) The trustees must provide the auditor with the necessary documents to complete the audit in a timely and professional manner; and within 14 days of a written request from the auditor

S52(2)(d) or Reg 4.09A

The assets of the SMSF must be held separately from any assets held by the trustee personally or by a standard employer sponsor or an associate of the standard employer

S52 (2)(e) The trustee must not enter into a contract that would prevent / hinder them from exercising the powers of a trustee

S62 The fund must be maintained for the sole purpose of providing benefits to fund members upon their retirement, or upon reaching a prescribed age, or to the dependents in the case of a member’s death before retirement

S65 The trustees must not loan monies or provide financial assistance to any member or relative at any time during the financial year

S66 The trustees must not acquire any assets (not listed as an exemption) from any member or related party of the fund

S67 The trustees of the fund must not borrow any money or maintain an existing borrowing (not listed as an exemption)

S67A-67B Limited recourse borrowing arrangements

S69-71E Outline of the in-house asset rules that trustees must follow. (These relate to transactions of any kind with a related party of the fund)

S73-75 Outline of the manner in which in-house assets must be valued by trustees (arms length market value)

S80-85 The trustees must comply with the in-house asset rules

S103 The trustees must keep minutes of all meetings and retain the minutes for a minimum of 10 years

S104A Trustees who became a trustee on or after 1 July 2007 must sign and retain a trustee declaration

S109 All investment transactions must be made and maintained at arms length - ie purchase, sale price and income from an asset reflects a true market value/rate of return

S126K A disqualified person cannot be a trustee, investment manager or custodian of a superannuation fund

Sub Reg 1.06 (9A)

Pension payments must be made at least annually and must be at least the amount calculated under clause 2 of Schedule 7

Reg 4.09 Trustees must have an investment strategy for the fund

Reg 5.03 Investment returns must be allocated to members in a manner that is fair and reasonable

Reg 5.08 Member benefits must be maintained in the fund until transferred or cashed out in a permitted fashion

Reg 6.17 Payments must be made in accordance with Part 6 of the regulations and be permitted by the trust deed

Reg 7.04 Contributions must be accepted in accordance with the applicable rules for the year being audited


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Section or Regulation

Explanation

Reg 13.12 Trustees must not recognise an assignment of a super interest of a member or beneficiary

Reg 13.13 Trustees must not recognise a charge over or in relation to a member’s benefits

Reg 13.14 Trustees must not give a charge over, or in relation to, an asset of the fund

Reg 13.18AA Investments in collectables and personal use assets must be maintained in accordance with prescribed rules.

Documents

2. The audit of a self managed superannuation fund · Appendix 2A – Example audit engagement letter for the audit of a Self-Managed Superannuation Fund 2:9 Appendix 2B – Example