Liabilities of a SMSF, other than accrued benefits which are discussed separately, may include:

• Goods and Services Tax (GST) payable, if the SMSF is registered for GST;
• Income tax liabilities, current and deferred;
• Accruals for accounting and audit fees;
• Liabilities relating to limited recourse borrowing arrangements;
• Any other accrued expense the trustee have provided for or incurred;
• Benefits payable, including benefits arising from insurance claims; and
• Bank overdrafts, other borrowings and related interest payable.

The audit assertions with respect to a SMSF’s liabilities are:

• Existence – the liabilities exist.
• Rights and obligations (ownership) – the liabilities are obligations of the SMSF.
• Completeness – liabilities of the SMSF have been recorded.
• Accuracy, valuation and allocation – liabilities are recorded at appropriate amounts and allocated to the appropriate account.

Generally, SMSFs are not permitted to borrow. Permitted exceptions are set out in s67 of the SISA and include temporary borrowings to fund the payment of member benefits, payment of the superannuation contributions surcharge,^[94] and the settlement of securities transactions where the borrowing was unforeseen. Sections 67A and 67B of the SISA detail the further exception for limited recourse borrowing arrangements and set out the requirements that need to be met.

Audit risks to be considered in relation to auditing liabilities may include, but are not limited to:

• liability values being understated;
• liabilities being omitted;
• excessive accruals for expenses that will not be paid or which are not legitimate expenses of the SMSF; and
• loan documents in respect of a limited recourse borrowing arrangement (LRBA) that do not specify the loan to be limited in recourse.

Normally, the auditor performs a search for unrecorded liabilities by examining brokers’ statements for outstanding balances, bank confirmation letters for borrowings or evidence of security provided, banking records for payments after period end and by reviewing the financial records for expenses that were paid in previous years, but billed infrequently or annually such as insurance or accountancy fees, which may not have been included in the current period’s accruals. The auditor may seek representations from the trustee that all liabilities of the SMSF have been disclosed and recorded.