Understanding the SMSF Audit Process

August 2022

Most advisers and Trustees have very little to do with their SMSF Auditor. Provided their fund is in order, it is somewhat expected the Trustees and advisers are disengaged from the audit process.

Nonetheless, understanding the audit process is important for Advisers and Trustees as it can help navigate potential issues in the future (as well as existing issues) that can become expensive if not dealt with correctly.

The SMSF audit process starts with the Audit Engagement Letter which is requested by the Trustee and sent by the Auditor. The Audit Engagement Letter sets out the scope of the audit and the responsibilities of the Auditor.

The next step is the Trustee Representative Letter, which is sent by the Trustee to the Auditor once the financial accounts and tax return are complete. The Trustee Representative Letter confirms the accounts are accurate and there is no fraud.

Once the Auditor has reviewed the fund’s financial accounts and supporting documentation, they will issue the Audit Report and Audit Opinion. The Audit Report is divided into two parts:

  • Part A - which covers the financial audit.
  • Part B - which covers fund compliance.

The auditor will provide an audit opinion for each section.

Following the Audit Report, the Auditor will issue a Management Letter or Audit Completion Letter to the Trustee detailing any issues with the fund or areas that can should be looked at or could be a particular risk.

If a breach is identified by the Auditor, it may become reportable to the ATO if:

  • The total value of all contraventions is more than 5% of the fund’s assets or greater than $30,000.
  • A breach identified in a previous year has been repeated in the current year.
  • A breach was identified in a previous year and has not been rectified.
  • Unlisted fund assets which have not been properly valued.
  • Funds are released early by a member.
  • Information requested by the Auditor from Trustees is not provided with 14 days.
  • ATO trustee declaration has not been signed.
  • Trustees do not have or are not following their investment strategy.
  • Trustees have not kept appropriate records or minutes.

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