SMSF Audit Technical Competency
The compliance and financial statement audit
An SMSF audit has two interlocking components: the financial statement audit, testing whether accounts give a true and fair view, and the compliance audit, testing whether the fund complied with the superannuation laws. Candidates must know that both must be completed before an audit report is issued, and that a qualified or adverse opinion is available where problems are material.
Core compliance areas to master
The technical syllabus centres on the fund's compliance with the in-house asset rules, the sole purpose test, borrowing prohibitions (including limited recourse borrowing arrangements), acquisition and disposal rules between related parties, contribution acceptance standards, and the payment standards for benefits. Each area has a distinctive trap. For in-house assets, the test is measured against total fund assets at the end of the income year, with the general limit being five per cent. For related-party acquisitions, the key is whether the asset was acquired at market value from an arm's-length party. For limited recourse borrowing arrangements, the trap is a recourse arrangement that exceeds the permitted structure or a payment applied to improve rather than maintain the asset.
Evidence and documentation
The auditor must obtain sufficient appropriate evidence: trustee minutes, bank statements, contract notes, valuation reports, and member records. Questions frequently test whether a valuation is acceptable, whether minutes properly evidence a decision, and whether documentation supports the investment strategy.
Worked example
A fund holds a residential property leased to a member's business. The lease is an in-house asset. If the property is worth 8 per cent of total fund assets, the fund exceeds the five per cent limit and the auditor must report the contravention, requiring rectification. The rule of thumb: identify the asset, classify it, measure it against total assets, then assess the consequence.
Common traps
Do not assume market value is satisfied by a trustee assertion; do not treat a member loan as permissible; and do not ignore the timing of the measurement date.