2. The audit of a self managed superannuation fund

Transcription

1 2. The audit of a self managed superannuation fund 2. The audit of a self managed superannuation fund 2:2 Introduction to this chapter 2:2 ASIC SMSF auditor registration 2:2 Overview of the audit of an SMSF 2:2 SMSF specific methodology 2:3 Acceptance and continuance 2:3 Financial report audit 2:5 Planning 2:5 Reporting 2:6 Compliance audit 2:6 Reporting obligations for the financial statement and compliance audits 2:7 Management letter 2:7 Appendices 2:8 Appendix 2A Example audit engagement letter for the audit of a Self-Managed Superannuation Fund 2:9 Appendix 2B Example SMSF audit plan 2:12 Appendix 2C Example trustee representation letter to the auditor 2:16 Appendix 2D Example management letter template 2:19 Appendix 2E ATO regulated superannuation funds 2:21 Appendix 2F Example audit programs 2:22 Compliance audit 2:39

2 Small entities audit manual The audit of a self managed superannuation fund Introduction to this chapter This chapter deals with the financial statement audit and compliance audit for self-managed superannuation funds (SMSF) and should be read in conjunction with Chapter 1 Overview of audits and reviews for the financial statement audit and Chapter 5 Overview of a compliance audit. SMSFs are generally non-reporting entities that produce special purpose financial reports and are regulated by the Australian Taxation Office (ATO). This chapter is not applicable for the audits of APRA regulated superannuation funds. ASIC SMSF auditor registration ASIC s register of SMSF auditors is effective from 1 July 2013 and is part of the Australian Government s Stronger Super reforms to improve integrity and community confidence in the sector. ASIC has responsibility for registering approved SMSF auditors, setting competency standards and, where appropriate, cancelling, suspending or disqualifying auditors. Approved SMSF auditors will have ongoing obligations under section 128F of the Superannuation Industry (Supervisory) Act 1993 to comply with the competency standards set by ASIC. Auditors are also required by the legislation to comply with the auditing standards issued by the Auditing and Assurance Standards Board. Any auditor who wishes to sign off SMSF audit reports from 1 July 2013 must register with ASIC, applications should be made by 30 April A detailed timeframe is available on the ASIC website. In order to be registered, SMSF auditors must meet minimum education, experience and competency requirements as well as maintaining professional indemnity insurance. Existing approved SMSF auditors are able to apply for registration under transitional arrangements between 31 January 2013 and 30 June 2013, which may exempt them from some registration requirements. ASIC has published Regulatory Guide 243 Registration of self-managed superannuation fund auditors and Class Order (CO 12/1687) which provide more information on the requirements for an SMSF auditor. Guidance Statement (GS 009) Auditing self managed superannuation funds was issued by the AUASB in August 2011 (refer CPA Australia Members Handbook and AUASB website), this chapter has been written with regard to the recommendations and guidance of GS 009 and other professional statements and standards current at the time of writing. Overview of the audit of an SMSF Superannuation funds are governed by the requirements of the Superannuation Industry (Supervision) Act 1993 (SISA) and the Superannuation Industry (Supervision) Regulations 1994 (SISR). Section 35C of the SIS Act requires all superannuation funds, regardless of size or type, to be audited on an annual basis. The audit has two components: the audit of the financial report to enable the auditor to form an opinion as to the fair presentation of the financial report in accordance with stated accounting policies. This component of the audit is conducted in accordance with Australian Auditing Standards. the compliance audit to enable the auditor to form an opinion as to the trustees compliance with specified requirements of the SISA and the SISR. This compliance audit is conducted in accordance with the Australian Standards on Assurance Engagements. The auditor is required to provide an audit report using the ATO approved form which covers both the financial statement and compliance components of the audit. The auditor s obligation to consider compliance with the SIS Act and SIS Regulations is restricted to those sections and regulations specified in the approved form of the audit report (see Appendix 2E). An SMSF audit report is not required to be lodged with the SMSF Annual Return. However, details of qualified audit reports or compliance breaches must be provided. In addition auditors of self managed superannuation funds have additional reporting requirements, directly to the ATO. 2:2

3 2. The audit of a self managed superannuation fund Definition of an SMSF Section 17A of the SISA sets out the definition of an SMSF which generally has the following characteristics: a) it has fewer than five members; b) each individual trustee or director of the corporate trustee is a member of the fund, unless it is a single member fund, in which case the sole member is either: i. a director of the corporate trustee or one of two directors who are related; or ii. one of two individual trustees of whom the additional trustee may be anyone apart from an employee of the member, unless the employee is related; c) each member of the fund is a trustee or a director of the corporate trustee; d) no member is an employee of another member, unless they are relatives; and e) no trustee, or director of a corporate trustee, receives remuneration for any duties or services performed by the trustee or director in relation to the fund. SMSF specific methodology Chapter 1 and Chapter 5 of this guide provide details of the generic methodology for the audits, any SMSF specific requirements have been documented in the relevant phase below. Acceptance and continuance Who can audit an SMSF? Prior to 1 July 2013 An SMSF audit must be performed by an approved audit, who is an individual who is currently: a registered company auditor, or a member of CPA Australia, or a member of the Institute of Chartered Accountants in Australia, or a member of the Institute of Public Accountants, or a fellow or member of the Association of Taxation and Management Accountants, or a fellow of the National Tax and Accountants Association Ltd, or a SMSF specialist auditor for the SMSF Professionals Association of Australia Ltd, or the Auditor-General of the Commonwealth, or a state or territory. After 1 July 2013 A SMSF audit must be performed by an ASIC registered auditor, known as an approved SMSF auditor, see information above. Competency requirements In view of market growth in the area of SMSFs and consultation with the regulator, CPA Australia in a joint initiative with the other professional accounting bodies, developed a set of competency requirements for auditors of SMSFs. Members who are auditing SMSFs must meet the following professional standards requirements: hold a practicing certificate issued by the professional accounting body of which they are a member (CPA Australia, the Institute of Chartered Accountants in Australia or the Institute of Public Accountants); have continuing professional indemnity cover; meet the ongoing continuing professional development requirements; ensure that those who undertake work on their behalf have appropriate knowledge and experience, and are properly supervised in the conduct of the audit. In addition to having one of the above qualifications, the auditor must demonstrate competencies in each of the following areas: acceptance and retention of clients; planning the engagement; 2:3

4 Small entities audit manual 2013 evaluating controls and testing these controls; substantive procedures; forming an audit opinion. The SMSF competency requirements are available on the CPA Australia website and will continue to apply to members over and above the ASIC auditor registration requirements that apply from 1 July ASIC has also introduced competency standards for approved SMSF Auditors (ASIC Class Order 12/1687), which are substantially based on the CPA Australia requirements. ASIC will be monitoring compliance with these standards from 1 July Auditor independence As part of the new SMSF auditor registration regime, the SIS Regulations now prescribe the requirements of APES110, the code of ethic for professional accountants, to apply to all approved SMSF auditors. Auditors will also be required to declare on the SMSF independent auditors report that they have met these requirements. The Accounting Professional and Ethical Standards Board has been tasked with providing guidance on how the requirements of APES 110 apply to SMSF audit engagements and the Joint Accounting Bodies have released a revised edition of the Independence Guide: <cpaaustralia.com.au/cps/rde/xbcr/cpa-site/independence-guide. pdf>, with a much greater focus on SMSF audits. The Auditing and Assurance Standards Board has also provided guidance through Appendix 6 of Guidance Statement, GS 009, which covers threats to independence in a SMSF. The Appendix sets out various scenarios and safe guards that may be available to the Auditor in a given situation. Safeguards within the SMSF may be limited, as by its very nature, a SMSF is a small entity with limited scope for segregation of duties. Assisting an audit client in the preparation of accounting records or financial reports may create a self-review threat when those records and reports are subsequently audited by the same firm. If the firm s staff also make management decisions for the SMSF, which may occur if the firm is providing administrative services to the SMSF, there are no safeguards available to reduce the self-review threat to an acceptably low level, other than withdrawal from either the administration or the audit engagement. If, however, the accounting services provided are of a routine or mechanical nature, such as posting transactions and entries approved by the SMSF or preparing the financial report based on a trial balance provided by the SMSF, the self-review threat may be reduced to an acceptably low level by applying safeguards, including: Making arrangements so accounting services are not performed by a member of the audit team. Implementing policies and procedures to prohibit the individual providing such services from making any managerial decisions on behalf of the SMSF. Requiring the source data for the accounting entries to be originated by the SMSF. Requiring the underlying assumptions to be originated and approved by the SMSF. Obtaining the SMSF s approval for any proposed journal entries or other changes affecting the financial report. Obtaining the SMSF s acknowledgement of their responsibility for the accounting work performed by the firm. Disclosing to the trustees the firm s involvement in both engagements. Provision of taxation services to a SMSF which is also an audit client would not generally create a threat to independence. Timing of auditor appointment The trustees are required to appoint the auditor at least 30 days prior to the date that the auditor s report is due. Engagement letter The audit engagement letter should set out clearly the auditor s reporting responsibilities for both components of the audit; an example audit engagement letter can be found in Appendix 2A to this chapter. 2:4

5 2. The audit of a self managed superannuation fund Financial report audit Planning Understanding the business In conducting a SMSF audit, the auditor obtains a preliminary understanding of the SMSF, including the: trust structure; nature of its investments and administration; parties involved in the management and trusteeship of the SMSF; and related parties of the trustees and members. In gaining this preliminary understanding of the SMSF, the auditor reviews the current trust deed to verify whether: a) The trust deed was properly executed. b) The SMSF has current and appropriately empowered trustees. c) The SMSF was established with either a corporate trustee, individual trustees or to pay a pension. d) The trust deed complies with or has a mechanism to comply with the SISA and SISR and changes thereto. e) The powers to accept contributions and pay benefits, in the form permitted by the SISA and SISR, are included. A comprehensive list of considerations for examining the SMSF s trust deed is included in Appendix 4 of GS009. SMSFs are often small entities, with a close and related membership where control is vested in a few individuals. There may be little or no opportunity for implementing proper segregation of duties in these circumstances. Consequently, the auditor may assess the SMSF s control environment and compliance framework as ineffective, in which case the auditor will be unable to rely on the effectiveness of the internal controls to reduce substantive testing. As a result, the auditor may design and perform further audit procedures which are primarily or entirely substantive procedures. Under ASA 250, the auditor is required to consider whether the SMSF has breached the SISA or SISR previously and whether there is any outstanding correspondence or unresolved issues with the ATO. Any such matters identified will impact on the risk assessment and the auditor s assessment of the compliance framework. SMSFs may use service organisations to provide services such as investment management services including: Custody. Asset management (including Hedge fund management and Private Equity). Property management. Superannuation member administration. Investment administration, including fund accounting and/or fund administration. Registry. Where this is the case, this will have an impact on the response to the risks identified see Chapter 1 and the auditor should look at the controls prevailing at the administrator. Identification of risk The major risk areas to consider when auditing SMSFs are: investments (ensuring their existence, ownership, correct valuation, representation and timing); contributions (ensuring they are calculated correctly, have the appropriate preservation status, are properly allocated to members in the appropriate period and treated correctly for tax purposes); benefits (ensuring the correct calculation of amounts paid in accordance with the trust deed and ensuring no unrecorded benefits are payable); revenue (ensuring that revenue is being accounted for in accordance with the stated accounting policies). 2:5

6 Small entities audit manual 2013 Communication with third parties In order to understand the business and obtain sufficient appropriate audit evidence, the auditor may be required to communicate with a number of third parties, including actuaries, fund administrators and investment managers. It is important to coordinate the timing of this communication so that all background information can be assessed before determining the nature, timing and extent of audit procedures. Other information such as confirmation of investments will be required at year end. Planning memorandum In addition to the information included in chapter 1, the following specific SMSF details should be documented in the audit plan. The response to the risks identified (i.e. the procedures to be performed), the nature, timing and extent of which depends on factors such as: The size and complexity of the SMSF. Whether the SMSF was a complying fund in prior years. Whether the SMSF is a defined benefit or accumulation fund. The level of trustee involvement and knowledge of the operations of the SMSF. Whether the SMSF is self-administered or administered by a third party service organisation. The nature and range of investments held and whether they are internally or externally managed. The availability of service auditor s reports for services provided by service organisations. Whether the employer-sponsor is also a client of the firm preparing the accounts or the auditor. The potential and any known previous compliance issues. The due date for lodgement of the SMSF s Annual Return to the ATO. Annual review of the audit plan is necessary to ensure that it is updated to reflect the current circumstances of the SMSF and any changes in legislation that may affect the SMSF. A sample audit plan is provided in Appendix 2B to this Chapter. Reporting Financial information to be prepared and basis for preparation Most SMSFs will be required to prepare a statement of financial position and an operating statement. The inclusion of a statement by the trustee is recommended, although it is not mandatory. Minimum mandatory financial statement disclosure requirements are as follows (APES 205): a statement that the financial statements are special purpose financial statements; a statement of specific purpose for which the financial statements have been prepared; a statement of the significant accounting policies adopted in preparing and presenting the financial statements. The measurement of assets at net market value may be required under the trust deed. It is the opinion of the ATO that SMSF assets should be valued at their current market value (refer NAT ). Compliance audit Objective The relevant auditing standards for the SMSF compliance audit are: ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information; ASAE 3100 Compliance Engagements. Guidance on the application of these standards is provided in Chapter 4 of this guide. The objective of the compliance audit is to form an opinion on the following five main areas: The fund meets the definition of an SMSF and has elected to be a regulated fund (SISA s17a). The fund is maintained for the sole purpose of providing benefits to fund members upon their retirement, or to their dependents in the case of the member s death before retirement (SISA s62). 2:6

7 2. The audit of a self managed superannuation fund The trustees have an investment strategy and complies with the investment restrictions (SISR. 4.09). The trustees adhere to contribution and benefit payment standards, and (SISR 6.17 and 7.04). The trustees carry out their administrative obligations (SISR s103). There is the risk in the compliance audit that there has been a breach of the SIS Act requirements which is not detected by the auditor. It is important that the audit procedures are planned so they cover the entire financial period and test compliance with the relevant SIS legislation requirements. The Appendix to the Audit Report (Appendix 2E) provides a summary of the sections of the SISA and SISR reported on in the Auditors Report. The sections and regulations of the SIS legislation listed in the audit report represent the minimum audit requirements for compliance. The auditor can expand the scope of the audit as he or she deems appropriate, based on audit risk and other factors. The scope of the audit (financial and compliance) should be agreed with the trustees of the SMSF before the audit. Reporting obligations for the financial statement and compliance audits The auditor is required under the SISA to: a) provide an auditor s report on the SMSF s operations for the year to the trustees in the approved form (see Appendix 2E); b) report in writing to a trustee, if the auditor forms the opinion in the course of or in connection with the performance of the audit of the SMSF, that: i. any contraventions of the SISA or SISR, may have occurred, may be occurring or may occur in relation to the SMSF (section 129 of the SISA); or ii. the financial position of the SMSF may be, or may be about to become, unsatisfactory (section 130 of the SISA); and c) report in writing to the ATO using the approved form Auditor/actuary contravention report (ACR) and instructions (ACR instructions), if the auditor forms the opinion in the course of or in connection with the performance of the audit of a SMSF, that: i. it is likely that a contravention, may have occurred, may be occurring or may occur, of the requirements of the SISA or SISR, specified by the ATO in the ACR, which meet the tests specified in the ACR instructions (section 129 of the SISA); or ii. the financial position of the SMSF may be, or may be about to become, unsatisfactory (section 130 of the SISA). An audit contravention report (NAT ) has been developed by the ATO and is located on the ATO website. An auditor checklist to assist in reporting obligations can be found in the document Approved auditors and self-managed super funds Role and responsibilities as an approved auditor (NAT ). This ATO guide outlines the responsibilities of approved auditors of SMSFs under the SIS Act and the SIS Regulations, and explains what the ATO expects of auditors in conducting audits. If a fund is established on or after 1 July 2008 and has a reportable contravention in its first 15 months of operation, the auditor is required to report this to the ATO, regardless of the amount involved. This helps to ensure new trustees are made aware of their obligations and responsibilities at an early stage. Management letter Trustees should be provided with a management letter detailing the findings and implications of the audit. This letter should include details of all contraventions of the SIS Act and SIS Regulations and appropriate recommendations for courses of action to be taken by the trustees. It should also document identified weaknesses in internal controls that are not necessarily breaches of the SIS Act or SIS Regulations but would provide the trustees with improvements to their administrative procedures or systems. 2:7

8 Small entities audit manual 2013 Appendices The following appendices contain example documents for use in the financial statement and compliance audits of a Self-Managed Superannuation Fund (SMSF). Appendix 2A Example audit engagement letter. Appendix 2B Example SMSF audit plan. Appendix 2C Example trustee representation letter. Appendix 2D Example management letter template. Appendix 2E ATO regulated audit report. Appendix 2F Example audit programs. 2:8

9 2. The audit of a self managed superannuation fund Appendix 2A Example audit engagement letter for the audit of a Self-Managed Superannuation Fund The following example audit engagement letter from Appendix 1 of GS009 is for use as a guide only and may need to be modified according to the individual requirements and circumstances of each engagement. The section references under the objective of the auditor should be confirmed to the latest ATO Audit Report. The ATO is of the opinion that these letters should be provided annually. [Date] [The Trustees/Directors of the Corporate Trustee] [SMSF name] [Address] To [the Trustees/Directors of the Corporate Trustee] of [SMSF name] The objective and scope of the audit You have requested that we audit the [SMSF name] s (the Fund): 1. financial report, which comprises the [statement of financial position/statement of net assets] as at [date] and the [operating statement/statement of changes in net assets] for the [period] then ended and the notes to the financial statements; and 2. compliance during the same period with the requirements of the Superannuation Industry (Supervision) Act 1993 (SISA) and SIS Regulations (SISR) specified in the approved form auditor s report as issued by the ATO, which are sections 17A, 35A, 35B, 35C(2), 52(2)(d), 52(2)(e), 62, 65, 66, 67, 67A, 67B, 69-71E, 73-75, 80-85, 103, 104A, 109 and 126K of the SISA and regulations 1.06(9A), 4.09, 4.09A, 5.03, 5.08, 6.17, 7.04, 13.12, 13.13, 13.14, and 13.18AA of the SISR. We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter. Our audit will be conducted pursuant to the SISA with the objective of our expressing an opinion on the financial report and the fund s compliance with the specified requirements of the SISA and SISR. The responsibilities of the auditor We will conduct our financial audit in accordance with Australian Auditing Standards and our compliance engagement in accordance with applicable Standards on Assurance Engagements, issued by the Auditing and Assurance Standards Board (AUASB). These standards require that we comply with relevant ethical requirements relating to audit and assurance engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement and that you have complied, in all material respects, with the specified requirements of the SISA and SISR. The annual audit of the financial reports and records of the Fund must be carried out during and after the end of each year of income. In accordance with section 35 of the SISA, we are required to provide to the trustees of the Fund an auditor s report in the approved form within the prescribed time as set out in the SISR, being a day before the latest date stipulated by the ATO for lodgement of the fund s Annual Return. Financial audit A financial audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. A financial audit also includes evaluating the appropriateness of the financial reporting framework, accounting policies used and the reasonableness of accounting estimates made by the trustees, as well as evaluating the overall presentation of the financial report. Due to the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatements may remain undiscovered. In making our risk assessments, we consider internal controls relevant to the fund s preparation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the fund s internal controls. However, we expect to provide you with a separate letter concerning any significant deficiencies in the fund s system of accounting and internal controls that come to our attention during the audit of the financial report. This will be in the form of a trustee letter. 2:9

10 Small entities audit manual 2013 Compliance engagement A compliance engagement involves performing audit procedures to obtain audit evidence about the fund s compliance with the provisions of the SISA and SISR specified in the ATO s approved form auditor s report. Our compliance engagement with respect to investments includes determining whether the investments are made for the sole purpose of funding members retirement, death or disability benefits and whether you have an investment strategy for the fund, which gives due consideration to risk, return, liquidity and diversification. Our procedures will include testing whether the investments are made for the allowable purposes in accordance with the investment strategy, but not for the purpose of assessing the appropriateness of those investments to the members. The responsibilities of the trustees We take this opportunity to remind you that it is the responsibility of the trustees to ensure that the fund, at all times, complies with the SISA and SISR as well as any other legislation relevant to the fund. The trustees are also responsible for the preparation and fair presentation of the financial report. Our auditor s report will explain that the trustees are responsible for the preparation and the fair presentation of the financial report and for determining that the accounting policies used are consistent with the financial reporting requirements of the SMSF s governing rules, comply with the requirements of SISA and SISR and are appropriate to meet the needs of the members. This responsibility includes: Establishing and maintaining controls relevant to the preparation of a financial report that is free from misstatement, whether due to fraud or error. The system of accounting and internal control should be adequate in ensuring that all transactions are recorded and that the recorded transactions are valid, accurate, authorised, properly classified and promptly recorded, so as to facilitate the preparation of reliable financial information. This responsibility to maintain adequate internal controls also extends to the Fund s compliance with SIS including any Circulars and Guidelines issued by a relevant regulator to the extent applicable. The internal controls should be sufficient to prevent and/or detect material non-compliance with such legislative requirements. Selecting and applying appropriate accounting policies. Making accounting estimates that are reasonable in the circumstances. Making available to us all the books of the Funds, including any registers and general documents, minutes and other relevant papers of all Trustee meetings and giving us any information, explanations and assistance we require for the purposes of our audit. Section 35C(2) of SIS requires that Trustees must give to the auditor any document that the auditor requests in writing within 14 days of the request. As part of our audit process, we will request from the trustees written confirmation concerning representations made to us in connection with the audit. Our audit report is prepared for the members of the Fund and we disclaim any assumption of responsibility for any reliance on our report, or on the financial report to which it relates, to any person other than the members of the fund, or for any purpose other than that for which it was prepared. Independence We confirm that, to the best of our knowledge and belief, the engagement team meets the current independence requirements of the Code of Ethics for Professional Accountants, as issued by the Accounting Professional & Ethical Standards Board in relation to the audit of the fund. In conducting our financial audit and compliance engagement, should we become aware that we have contravened the independence requirements, we shall notify you on a timely basis. Report on matters identified Under section 129 of the SISA, we are required to report to you in writing, if during the course of, or in connection with, our audit, we become aware of any contravention of the SISA or SISR which we believe has occurred, is occurring or may occur. Furthermore, you should be aware that we are also required to notify the Australian Taxation Office (ATO) of certain contraventions of the SISA and SISR that we become aware of during the audit, which meet the tests stipulated by the ATO, irrespective of materiality of the contravention or action taken by the trustees to rectify the matter. Finally, under section 130, we are required to report to you and the ATO if we believe the financial position of the Fund may be, or may be about to become unsatisfactory. You should not assume that any matters reported to you, or that a report that there are no matters to be communicated, indicates that there are no additional matters, or matters that you should be aware of in meeting 2:10

11 2. The audit of a self managed superannuation fund your responsibilities. The completed audit report may be provided to you as a signed hard copy or a signed electronic version Compliance program The conduct of our engagement in accordance with Australian Auditing Standards and applicable Standards on Assurance Engagements means that information acquired by us in the course of our engagement is subject to strict confidentiality requirements. Information will not be disclosed by us to other parties except as required or allowed for by law or professional standards, or with your express consent. Our audit files may, however, be subject to review as part of the compliance program of a professional accounting body or the ATO. We advise you that by signing this letter you acknowledge that, if requested, our audit files relating to this audit will be made available under these programs. Should this occur, we will advise you. The same strict confidentiality requirements apply under these programs as apply to us as your auditor. Limitation of liability As a practitioner/firm participating in a scheme approved under Professional Services Legislation, our liability may be limited under the scheme. Fees We look forward to full co-operation with [you/your administrator] and we trust that you will make available to us whatever records, documentation and other information are requested in connection with our audit. [Insert additional information here regarding fee arrangements and billings, as appropriate.] Other This letter will be effective for future years unless we advise you of its amendment or replacement, or the engagement is terminated. Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangements for our financial audit and compliance engagement of the [SMSF name]. [Insert here or attach any additional matters specific to the engagement, such as business terms and conditions, as appropriate.] Yours faithfully, [Name and Title] [Date] Acknowledged on behalf of the trustees of [SMSF name] by (signed). [Name and Title] [Date] 2:11

12 Small entities audit manual 2013 Appendix 2B Example SMSF audit plan Audit strategy and plan Client: Prepared by: Preparation date: Fund name: 1. Audit team Partner: Manager: Include information about the supervision of staff/ review of work and other information about responsibilities: Balance date: Reviewed by: Review date: Staff: 2. Fund information ABN/TFN if corporate trustee: Trustee/s: Primary contact: Address: Phone: Fund member 1: Fund member 2: Fund member 3: Fund member 4: 3. Fund details Trust Deed commencement date: Where the deed has been amended, note the changes from the prior version: Type of fund: Investment strategy of the fund: Accumulation Defined Original Amended Major assets/investments held: Other pertinent facts about the fund: (e.g. the level of involvement of the trustees) Outsourcing of any operations? Are service audit reports available for these outsourced functions? 2:12

13 2. The audit of a self managed superannuation fund 4. Prior period issues or changes Identify any prior period issues or changes: 5. Audit scope Services to be provided: Audit completion due date: Signed engagement letter? Other requirements: Fund lodgement due date: 6. Legislative and regulatory change Identify any legislative or regulatory changes (SIS, tax, other): 7. Independence Yes No Consider and identify any independence or ethical issues in accepting this appointment 7.1 Does the firm prepare the financial statements of the fund? If yes, identify the person responsible for preparation 7.2 Are the Trustees related to the fund Auditor? 7.3 Is the Trustee a significant client of the firm? 7.4 Does the firm provide investment advice to the Trustee? 7.5 Is there any evidence that the Trustee has significant influence on the auditor of firm? 7.6 Comments and conclusion (for any yes answers) 2:13

14 Small entities audit manual Risk assessment L M H Document business risks and determine whether the likelihood/significance of the risk is low, medium or high 8.1 Fraud risk (in particularly consider revenue recognition) Provide an explanation for the assessment: 8.2 Investments held by the fund (in particular consider existence, ownership and valuation) Provide an explanation for the assessment: 8.3 Contributions (ensuring they are calculated correctly, have the appropriate preservation status, are properly allocated to members in the appropriate period and treated correctly for tax purposes) Provide an explanation for the assessment: 8.4 Benefits (ensuring the correct calculation of amounts paid in accordance with the trust deed and ensuring no unrecorded benefits are payable) Provide an explanation for the assessment: 8.5 Revenue (ensuring that revenue is being accounted for in accordance with the stated accounting policies) Provide an explanation for the assessment: 8.6 Risk that a breach of the SIS Act requirements has occurred Provide an explanation for the assessment: 9. Control assessment document the Auditor s understand of the control environment and the controls in place at the fund 2:14

15 2. The audit of a self managed superannuation fund 10. Materiality Materiality levels for audit: $ Rationale: 11. Audit approach response to identified risks (provide approach about any controls/systems reliance and the approach for the risks identified) consider nature, extent, timing and resources 12. Sign-off I confirm the audit plan and proposed approach is appropriate for the audit, based on the risks identified, understanding of the fund and systems and controls assessment. [Audit partner] [Signed] [Date] 2:15

16 Small entities audit manual 2013 Appendix 2C Example trustee representation letter to the auditor This illustrative letter from Appendix 2 of GS009 is provided as an example only and may need to be modified according to the individual requirements and circumstances of each engagement. Representations by the trustees will vary between SMSFs and from one period to the next. This letter assumes that the Fund is non-reporting and therefore is preparing special purpose financial statements. The SISA and SISR section numbers included in this letter should be agreed to the latest ATO audit report prior to use of this letter. [SMSF letterhead] [Date] [Addressee Auditor] Dear [Sir/Madam], Trustee Representation Letter This representation letter is provided in connection with your audit of the financial report of the [name of SMSF] (the Fund) and the Fund s compliance with the Superannuation Industry (Supervision) Act 1993 (SISA) and SIS Regulations (SISR), for the [period] ended [date], for the purpose of you expressing an opinion as to whether the financial report is, in all material respects, presented fairly in accordance with the accounting policies adopted by the Fund and the Fund complied, in all material respects, with the relevant requirements of SISA and SISR. The trustees have determined that the Fund is not a reporting entity for the [period] ended [date] and that the requirement to apply Australian Accounting Standards and other mandatory reporting requirements do not apply to the Fund. Accordingly, the financial report prepared is a special purpose financial report which is for distribution to members of the Fund and to satisfy the requirements of the SISA and SISR. We acknowledge our responsibility for ensuring that the financial report is in accordance with the accounting policies as selected by ourselves and requirements of SISA and SISR, and confirm that the financial report is free of material misstatements, including omissions. We confirm, to the best of our knowledge and belief, the following representations made to you during your audit. 1. Sole purpose test The Fund is maintained for the sole purpose of providing benefits for each member on their retirement, death, termination of employment or ill-health. 2. Trustees are not disqualified No disqualified person acts as a director of the trustee company or as an individual trustee. 3. Trust deed, trustees responsibilities and fund conduct The Fund meets the definition of a self-managed superannuation fund under SISA, including that no member is an employee of another member, unless they are relatives and no trustee [or director of the corporate trustee] receives any remuneration for any duties or services performed by the trustee [or director] in relation to the fund. The Fund has been conducted in accordance with its constituent trust deed at all times during the year and there were no amendments to the trust deed during the year, except as notified to you. The trustees have complied with all aspects of the trustee requirements of the SISA and SISR. The trustees are not subject to any contract or obligation which would prevent or hinder the trustees in properly executing their functions and powers. The Fund has been conducted in accordance with SISA, SISR and the governing rules of the Fund. The Fund has complied with the requirements of the SISA and SISR specified in the approved form auditor s report as issued by the ATO, which are sections 17A, 35A, 35B, 35C(2), 52(2)(d), 52(2)(e), 62, 65, 66, 67, 67A, 67B, 69-71E, 73-75, 80-85, 103, 104A, 109 and 126K of the SISA and regulations 1.06(9A), 4.09, 4.09A, 5.03, 5.08, 6.17, 7.04, 13.12, 13.13, and 13.18AA of the SISR. All contributions accepted and benefits paid have been in accordance with the governing rules of the Fund and relevant provisions of the SISA and SISR. There have been no communications from regulatory agencies concerning non-compliance with, or deficiencies in, financial reporting practices that could have a material effect on the financial report. 2:16

17 2. The audit of a self managed superannuation fund 4. Investment strategy The investment strategy has been determined with due regard to risk, return, liquidity and diversity, and the assets of the Fund are in line with this strategy. 5. Accounting policies All the significant accounting policies of the Fund are adequately described in the financial report and the notes attached thereto. These policies are consistent with the policies adopted last year. 6. Fund books and records We have made available to you all financial records and related data, other information, explanations and assistance necessary for the conduct of the audit; and minutes of all meetings of the trustees. We acknowledge our responsibility for the design and implementation of internal control to prevent and detect error. We have established and maintained an adequate internal control structure to facilitate the preparation of reliable financial reports, and adequate financial records have been maintained. There are no material transactions that have not been properly recorded in the accounting records underlying the financial report. All accounting records and financial reports have been kept for 5 years, minutes and records of trustees [or directors of the corporate trustee] meetings [or for sole trustee: decisions] have been kept for 10 years and trustee declarations in the approved form have been signed and kept for each trustee appointed after 30 June Fraud, error and non-compliance There have been no: a) Frauds, error or non-compliance with laws and regulations involving management or employees who have a significant role in the internal control structure that could have a material effect on the financial report. b) Communications from regulatory agencies concerning non-compliance with, or deficiencies in, financial reporting practices that could have a material effect on the financial report. c) Violations or possible violations of laws or regulations whose effects should have been considered for disclosure in the financial report or as a basis for recording an expense. 8. Asset form and valuation The assets of the Fund are being held in a form suitable for the benefit of the members of the Fund, and are in accordance with our investment strategy. Investments are carried in the books at [insert valuation method: e.g. market value]. Such amounts are considered reasonable in light of present circumstances. We have no plans or intentions that may materially affect the carrying values, or classification, of assets and liabilities. There are no commitments, fixed or contingent, for the purchase or sale of long term investments. 9. Uncorrected misstatements We believe the effects of those uncorrected financial report misstatements aggregated by the auditor during the audit are immaterial, both individually and in aggregate, to the financial report taken as a whole. A summary of such items is attached. 10. Ownership and pledging of assets The Fund has satisfactory title to all assets appearing in the statement of [financial position/net assets]. All investments are registered in the name of the Fund, where possible, and are in the custody of the respective manager/trustee. There are no liens or encumbrances on any assets or benefits and no assets, benefits or interests in the Fund have been pledged or assigned to secure liabilities of others. All assets of the Fund are held separately from the assets of the members, employers and the trustees. All assets are acquired, maintained and disposed of on an arm s length basis and appropriate action is taken to protect the assets of the Fund. 2:17

18 Small entities audit manual Related parties Related party transactions and related amounts receivable have been properly recorded or disclosed in the financial report. Acquisitions from, loans to, leasing of assets to and investments in related parties have not exceeded the in-house asset restrictions in the SISA at the time of the investment, acquisition or at year end. The Fund has not made any loans or provided financial assistance to members of the Fund or their relatives. 12. Borrowings The Fund has not borrowed money or maintained any borrowings during the period, with the exception of borrowings which were allowable under SISA. 13. Subsequent events No events or transactions have occurred since the date of the financial report, or are pending, which would have a significant adverse effect on the Fund s financial position at that date, or which are of such significance in relation to the Fund as to require mention in the notes to the financial statements in order to ensure they are not misleading as to the financial position of the Fund or its operations. 14. Outstanding legal action The trustees confirm that there is no outstanding legal action or claims against the Fund. There have been no communications from the ATO concerning a contravention of SISA or SISR which has occurred, is occurring, or is about to occur. 15. Additional matters [Include any additional matters relevant to the particular circumstances of the audit, for example: the work of an expert has been used; or justification for a change in accounting policy.] We understand that your examination was made in accordance with Australian Auditing Standards and applicable Standards on Assurance Engagements and was, therefore, designed primarily for the purpose of expressing an opinion on the financial report of the Fund taken as a whole, and on the compliance of the Fund with specified requirements of SISA and SISR, and that your tests of the financial and compliance records and other auditing procedures were limited to those which you considered necessary for that purpose. Yours faithfully, [Name of director/trustee] [Name of director/trustee] [Date] 2:18

19 2. The audit of a self managed superannuation fund Appendix 2D Example management letter template [Date] [The Trustees/Directors of the Corporate Trustee] [SMSF NAME] [address] Dear [Trustee(s) name] [SMSF Name] SUPERANNUATION FUND We have completed the audit of the [SMSF name] superannuation fund (the fund) for the financial year ended 30 June [year]. We wish to report to you the following matters arising from our audit: 1. Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) breaches No contraventions of the SIS Act were identified during our Audit or The following breaches of the SIS Act were identified in the conduct of our Audit: Breach Event Breach detected Relevant SIS legislation 1. Details of event Details of breach detected Relevant section breached Has breach been rectified Rectified as at or Not rectified Reportable contravention No Yes 2. Material audit adjustments No material audit adjustments were identified/carried out during our Audit; or The following material audit adjustments were identified/carried out during our Audit. 3. Matters for Trustee attention In the course of our audit, we did not detect any instances of Non Compliance; or In the course of our audit, we identified the following instances of Non Compliance: Breach Suggested actions 1. Set out the suggested action required by the trustees. 4. Further matters for your review We did not identify any significant administration issues in the conduct of our Audit; or The following administration issues were identified in the conduct of our Audit and recommend as follows: Issue Matter Recommendation 1. Identify matters for Set out recommended action/changes to be recommended. review 2:19

20 Small entities audit manual 2013 This report is prepared on the basis of the limitations set out below. The matters raised in this report are only those that came to our attention during the course of our audit and are not necessarily a comprehensive statement of all the weaknesses that exist or improvements that might be made. We cannot, in practice, examine every activity and procedure, nor can we be a substitute for management s responsibility to maintain adequate controls over all levels of operations and their responsibility to prevent and detect irregularities, including fraud. Accordingly, management should not rely on our report to identify all weaknesses that may exist in the systems and procedures reviewed, or potential instances of fraud that may exist. Our comments should be read in the context of the scope of our work. Findings within this report may have been prepared on the basis of management representations. This report has been prepared solely for your use as management of [SMSF name] and should not be quoted in whole or in part without our prior written consent. No responsibility to any third party is accepted as the report has not been prepared, and is not intended, for any other purpose. Should you have any questions in relation to the above matters, please do not hesitate to contact [name of auditor] on telephone number [telephone number]. Yours sincerely [Name of auditor] Audit Partner 2:20