Wind-Up, Final Audit and the Missing Minutes
An SMSF with two members is being wound up after the members reached 75 and rolled their benefits to a retail fund. The final audit covers a 10-month period. The fund's assets at the start were $1.4 million, including a commercial property sold in month 4 for $900,000. The sale proceeds were used to pay out member benefits of $850,000 and to pay $30,000 in expenses. The remaining $20,000 was transferred to the retail fund. The trustee has not provided minutes of the decision to wind up, the property sale contract, or the benefit payment calculations. The auditor's file shows the property was sold to a company owned by the trustee's son at $900,000, and the auditor has a desktop valuation of $1.05 million. The fund's bank statements show a $50,000 transfer to the trustee's personal account in month 8.
1. What evidence should the auditor obtain before signing the final audit report?
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The auditor should obtain the trust deed and any amendments, the trustee's minutes resolving to wind up the fund, the property sale contract and settlement statement, the benefit payment calculations, and the bank statements for the full period. The auditor should also obtain the transfer documentation for the $20,000 to the retail fund and the rollover forms.
For the property sale, the auditor should obtain an independent valuation at the date of sale and compare it to the $900,000 price. The desktop valuation of $1.05 million is a red flag, and the sale to the trustee's son is a related-party transaction that must be at market value under s 66. If the sale was below market, the auditor should quantify the shortfall and report the breach.
For the $50,000 transfer to the trustee's personal account, the auditor should obtain evidence of the purpose and authority. If it was a benefit payment, the auditor should confirm it was properly calculated and within the member's entitlement. If it was not authorised, the auditor should report it as a breach of the sole purpose test and the payment rules. The auditor should not sign the report until the evidence is obtained or the report is qualified.
2. How should the auditor treat the related-party property sale and the $50,000 transfer in the final report?
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The related-party sale must be at market value. The desktop valuation suggests a shortfall of up to $150,000, which is significant against a $1.4 million fund. The auditor should obtain a full valuation and, if the shortfall is confirmed, report the breach of s 66 and the trustee's duty to act in the members' best interests. The auditor should also consider whether the shortfall should be treated as a contribution or a loan.
The $50,000 transfer to the trustee's personal account is a serious breach if it was not an authorised benefit payment. The auditor should obtain the member's benefit entitlement, the payment calculation, and the trustee's resolution. If the payment was unauthorised, the auditor should report it as a breach of the sole purpose test and the payment rules, and should consider whether it was a loan under s 65.
The final report should disclose both matters, quantify the amounts, and state the evidence obtained. The auditor should not sign an unqualified report if the matters are unresolved. The auditor should also consider whether the fund's wind-up was properly documented and whether the remaining assets were transferred correctly.
3. What are the auditor's obligations if the trustee refuses to provide the missing documents?
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The auditor should document the request, the refusal, and the effect on the audit. If the trustee refuses to provide the trust deed, minutes, sale contract, or benefit calculations, the auditor cannot obtain sufficient appropriate evidence and should consider qualifying the report or issuing a disclaimer.
The auditor should communicate the refusal in writing to the trustee, explain the consequences, and set a reasonable deadline. If the trustee still refuses, the auditor should report the matter to the ATO as a breach of the trustee's obligations and consider whether to resign.
The auditor should also consider whether the refusal itself is a reportable contravention. The trustee's duty to keep records and provide information to the auditor is part of the fund's governance obligations. The auditor should document the refusal and the steps taken, and should not sign a report that implies the audit was completed when it was not.