SMSF Audit and Compliance: The Audit Cycle and Core SIS Obligations
The shape of the engagement
An SMSF must be audited annually by an approved SMSF auditor who is independent of the fund and its trustees. Understand the two-phase structure: the financial statement audit (are the accounts true and fair under accounting standards?) and the compliance audit (did the fund operate under the Superannuation Industry (Supervision) Act and Regulations for the income year?). The auditor issues an audit report to the trustees and, where required, an Independent Auditor's Report (IAR) lodged with the annual return. A qualified or contravention report is triggered where the auditor believes a contravention is reportable under the SIS Act reporting criteria.
Concepts to master
Know the trustee covenants in SIS Act s 52 and s 52A (investment strategy, insurance, arm's-length dealings, record keeping, separation of assets), the sole purpose test (s 62), in-house asset limits (Part 8), borrowing rules (s 67A/67B limited recourse), and contribution acceptance rules (s 290/292). Know the difference between an auditor contravention report and a fund income tax return disclosure, and the timeframes for lodging.
Traps in questions
- Confusing the auditor's role with the trustee's; the auditor does not fix breaches, only reports them.
- Assuming every breach is reportable; only those meeting the reporting criteria are.
- Missing that the audit opinion is addressed to the trustees, not the ATO.
- Treating the compliance audit as optional where the fund is winding up.
Rule of thumb
Ask: Is it a financial statement issue or a compliance issue? If the accounts are fine but a covenant is breached, it is a compliance matter and may require an IAR qualification or contravention report.