Planning an audit involves a number of closely related activities, which include:
- establishing the overall audit strategy for the audit;
- developing and documenting an audit plan in order to reduce audit risk and compliance engagement risk to an acceptably low level;
- updating the audit strategy and the audit plan as necessary during the course of the audit; and
- planning the nature, timing and extent of direction and supervision of engagement team members and review of their work.
The auditor plans the financial audit and compliance engagement so that they may be conducted in an effective manner in order to reduce audit risk and compliance engagement risk to an acceptably low level.
- ensures appropriate attention to important areas of the audit engagement;
- identifies potential problems on a timely basis;
- assists in the proper organisation and management of the audit engagement in order for it to be performed in an effective manner;
- assists the auditor in assigning work properly to audit team members and facilitates the direction, supervision and review of the team’s work; and
- assists, where applicable, in the coordination of work performed by other auditors, actuaries and experts.
The nature, timing and extent of planning activities will vary according to:
- the size, structure and complexity of the SMSF;
- whether the SMSF contravened the SISA or SISR in prior years;
- whether the SMSF is an accumulation fund or a pension fund or a combination of both;
- the level of trustee involvement and knowledge of the operations of the SMSF;
- whether the SMSF is selfadministered or administered by a third party service organisation;
- the nature and range of investments held and whether the SMSF uses the services of an advisor for investment advice;
- the availability of service auditor’s reports for services provided by service organisations;
- whether the employersponsor is also a client of the firm preparing the accounts or of the auditor; and
- the auditor’s previous experience, if any, with the SMSF.
An 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.
Overall Audit Strategy
Under ASA 300, the auditor is required to establish the overall audit strategy for the financial audit and this is mirrored in the guidance in ASAE 3100 for the compliance engagement. The overall audit strategy sets the scope, emphasis, timing, direction and conduct of the audit, including the resources required for the audit and supervision of the audit team. The audit strategy is based on the results of the preliminary work performed and the auditor’s experience gained on any previous audit engagements with the SMSF.
The complexity of the audit strategy will vary with the size, nature and complexity of the SMSF. The strategy guides the development of the more detailed audit plan for the nature, timing and extent of evidence gathering procedures to be performed and the reasons for selecting them.
In conducting a SMSF audit, the auditor obtains a preliminary understanding of the SMSF, including the SMSF’s trust structure, nature of its investments and administration, the parties involved in the management and trusteeship of the SMSF and related parties of the trustee and members.
In gaining this preliminary understanding of the SMSF, the auditor reviews the fund’s current governing rules to verify whether:
- the fund’s governing rules were properly executed;
- the SMSF has current and appropriately empowered trustee;
- the SMSF was established with either a corporate trustee or individual trustee under the pension powers;
- the fund’s governing rules comply with or have a mechanism to comply with the SISA and SISR and changes thereto; and
- the SMSF has powers to accept contributions and pay benefits, in the form permitted by the SISA and SISR.
The covenants in subsection 52B(2) and 52C(2) of the SISA are deemed to be included in the governing rules, even if they are not specifically included. A list of considerations in examining the SMSF’s governing rules is included in Appendix 3.
It is possible for the fund’s governing rules to be more restrictive than the SISA and SISR and prohibit or limit the trustee’s actions or powers. However, even if the fund’s governing rules are more expansive than the SISA and SISR, the trustee must ensure they still comply with the requirements of the SISA and SISR.
The Audit Plan
The audit plan documents the detailed implementation of the overall audit strategy. ASA 300 requires the auditor to develop and document the audit plan to record the key decisions and the nature, timing and extent of risk assessment procedures to be undertaken. The form and extent of the audit plan depends on the complexity of the SMSF and the circumstances of the specific audit engagement. The audit plan documents the procedures proposed to be undertaken at the assertion level and evidences work performed to facilitate proper review, supervision of the audit team and any external quality review.
The audit plan is dynamic and is required to be updated if necessary during the course of the audit. Audit evidence obtained may trigger a revision of the initial risk assessment and a need for further audit procedures, which are documented accordingly.
Often, the audit plan for a SMSF takes the form of a template which can be used to assist in maintaining quality control for the engagement as required by ASA 220. Standardised templates need to be tailored specifically to reflect the requirements of the SISA and SISR, the particular circumstances and nature of the SMSF and the audit evidence available.
The audit plan encompasses financial audit procedures, such as the illustrative financial audit procedures listed in Appendix 4 of this Guidance Statement, as well as compliance procedures.
Auditor guidance and information, including information on the ATO’s electronic SMSF audit tool (eSAT) for use in conducting the compliance engagement, is available on the ATO website at https://www.ato.gov.au/Super/Self-managed-super-funds/SMSF-auditors.