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How to prepare your annual audit

It’s a legal requirement to have the fund’s financial accounts audited every year, even if no contribution has been made to the fund during the period.



One of a self-managed super fund (SMSF) trustee’s most important obligations is the fund’s annual audit.

Superannuation legislation specifies a group of people who can audit SMSFs, and appointing an auditor is compulsory under the law.

The fund’s accountants generally prepare its accounts to be audited, says Peter Hogan, the Self-Managed Super Fund Association’s (SMSFA’s) head of technical.

It’s a legal requirement to have the fund’s financial accounts audited every year, even if no contribution has been made to the fund during the period. 

The fund’s trustees must appoint an auditor in writing, and a record of this kept in the SMSF’s documentation.

The auditor must send the Independent auditor’s report (IAR) to the trustees within 28 days of receiving all the fund’s relevant documentation. Only when the fund’s financial and compliance audit has been completed can its annual tax return be lodged.

As the Australian Taxation Office’s (ATO) web site notes in its advice to trustees:

“Before an SMSF auditor can start an audit, you or your professional adviser needs to give them information about your accounts and transactions for the previous financial year. Any additional information requested by your SMSF auditor must be provided within 14 days.”

“The audit is the compliance linchpin of the whole system,” says Hogan. “It’s up to the auditor to identify any area of non-compliance and the audit is critical to the integrity of the superannuation system,” he adds. 

According to the ATO an SMSF auditor has to be registered with ASIC External Link. This means it must have an SMSF auditor number that trustees need to include on the fund’s annual tax return.

The ATO’s rules mean the auditor must be independent. This means it can’t audit an SMSF in which it has invested. The auditor must also not have a close relationship, either personal or business, with the fund’s members or trustees.

Hogan says typically the auditor and the accountant are independent. SMSF auditors also tend to be specialist businesses, or attached to SMSF administrators. 

The SMSFA has an SMSF Specialist Auditor (SSAud®) designation for members. Advisers with the designation have demonstrated specialist knowledge of how to audit an SMSF.

In breach 


The trustee is notified if the auditor finds an area of non-compliance, with notes on how the issue needs to be addressed. 

There’s an obligation on SMSF auditors to proactively report non-compliance to the ATO in a very short time frame.

This is changing the way SMSFs interact with their auditor. Whereas once the trustees and auditor would only have contact on an annual basis, they need to be in much more regular communication so that the fund is aware if it has breached the SMSF rules.

For instance, SMSF trustees and auditors need to keep an eye on funds going into the account and its balance. 

This is because from 1 July this year the concessional contribution cap dropped to $25,000 a year and the non-concessional cap is a reduced $100,000 or $300,000 over three years. A new $1.6 million transfer balance cap has also been introduced for funds in retirement phase.

Transitional rules apply, and a close watch by trustees and auditors on the fund’s balance is essential during this period to ensure it remains inside the rules.

Common issues


According to Hogan, one of the common mistakes SMSFs trustees make is not realising they have to appoint an auditor.

According to the Australian Taxation Office’s web site, “you must appoint an approved SMSF auditor to audit your fund each year, at least 45 days before you need to lodge your SMSF annual return. The auditor examines your fund's financial statements and assesses your fund's compliance with super law.”

Hogan says some trustees don’t understand they have to formally appoint an auditor in writing. “The accountant doing the annual fund accounting will be able explain how the audit works and recommend independent auditors,” he says.

Another mistake, according to Hogan, is trustees not providing the right information for the fund.

Most SMSF audits rely on electronic data, although auditors also often require trustees to provide original documentation about the fund’s members and its assets.

“Providing the auditor with the information they need to do their job properly is equally as important as the obligation to lodge your annual return,” Hogan explains.
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