Receivables and Prepayments
Where the SMSF accounts on an accruals basis, receivables may include interest or trust distributions receivable and current tax assets. Receivables are tested primarily for existence, valuation and allocation by confirming the receipt in the subsequent period.
If the SMSF accounts on an accruals basis and invests in managed funds that pay distributions post balance date, the auditor verifies that the SMSF has accrued these distributions of income correctly and consistently and that the investment value of the underlying asset has been adjusted accordingly.
Prepayments are tested against cash payments and particular attention is paid to transactions with related parties to ensure they relate to a genuine expense.
Unpaid present entitlements (UPE) from related trusts risk being caught as a contravention of the IHA rules (Part 8 of the SISA), the arm’s length rules (section 109 of the SISA) and the sole purpose test (SPT), if not promptly paid. See ATO Ruling SMSFR 2009/3 Self Managed Superannuation Funds: application of the Superannuation Industry (Supervision) Act 1993 to unpaid trust distributions payable to a Self Managed Superannuation Fund for details of the ATO’s view on UPE’s between SMSF and related trusts. In reviewing UPE’s, the auditor considers whether there is genuine likelihood of the distribution being paid within proximity of the declaration of the distribution or whether the fund and trust have entered into a loan agreement (explicit or implicit).
See section 652 of the SISA.