Other Audit Considerations
The SMSF’s financial report is prepared on the basis that the SMSF is a going concern. Under ASA 570, the auditor is required to consider and remain alert to whether there are any events, conditions and related business risks which may cast significant doubt on the SMSF’s ability to continue as a going concern. In assessing going concern, the auditor considers the period of approximately 12 months following the date of the current auditor’s report, being the period to the expected date of the auditor’s report for the next annual reporting period.
To view a SMSF as a going concern, the SMSF is expected to be able to pay its debts as and when they fall due and continue in operation without any intention or necessity to liquidate or otherwise wind up its operations. For a SMSF, the primary concern is whether the SMSF will be able to pay benefits and entitlements to members, in addition to tax, audit and other expenses, payable over the coming year. If the SMSF is in an unsatisfactory financial position for the purposes of reporting under SISA section 130, the auditor still makes a separate assessment as to whether the SMSF is a going concern in forming their opinion on the financial report.
The auditor is concerned with whether the net assets of the SMSF exceed the vested benefits, which are payable to members irrespective of whether they continue as a member. If there is a deficiency in net assets with respect to vested benefits the SMSF may not be a going concern, so the auditor undertakes further audit procedures to investigate the deficiency. These procedures include identifying whether an actuarially determined technical insolvency program is in place and assessing whether it enables the SMSF to continue as a going concern. The trustee is required to initiate a technical insolvency program, designed by an actuary to return the SMSF to a solvent position within five years, if the SMSF is technically insolvent under the SISR. An accumulation fund is technically insolvent under the SISR if the net realisable value of the assets of the SMSF is less than the minimum guaranteed benefits to members.
If the SMSF is technically insolvent, the auditor ascertains whether a special funding and solvency certificate has been obtained by the trustee and a technical insolvency program initiated, to ensure that the SMSF is in a solvent position within five years, or alternatively winding-up proceedings have been initiated, as required under the SISR. The auditor assesses whether any technical insolvency program enables the SMSF to continue as a going concern. If winding-up proceedings have commenced the SMSF is not a going concern.
Having considered the matters described in paragraphs 281 to 28, under ASA 570, the auditor may conclude that either:
- an unmodified auditor’s opinion may be issued when:
- the auditor is satisfied that it is appropriate, based on all reasonably foreseeable circumstances facing the SMSF, for the financial report to be prepared on a going concern basis; or
- there is adequate disclosure of a “Material Uncertainty Related to Going Concern”. In the auditor’s report the auditor must include a separate section under that heading, draw attention to the note in the financial report, and state that these events or conditions may cast significant doubt on the SMSF continuing as a going concern but that the auditor’s opinion is not modified in respect of the matter; or
- a modified auditor’s opinion is necessary due to the existence of a material uncertainty which may cast significant doubt on the SMSF’s ability to continue as a going concern, expressed as:
- a qualified or adverse opinion in the auditor’s report, where the financial report does not adequately disclose this matter; or
- a modified auditor’s opinion is necessary due to the fact that the SMSF will not be able to continue as a going concern where the financial report had been prepared on a going concern basis, expressed as an adverse opinion.
Under ASA 570, the auditor communicates to the trustee if a modified opinion is to be issued in relation to going concern. This communication may be done in conjunction with communication of other matters of governance interest arising from the audit, discussed further in paragraphs 305 to 309.
ASA 560 requires the auditor to apply audit procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditor’s report that may require adjustment of, or disclosure in, the financial report have been identified. Under ASA 560, audit procedures to identify such events are performed as near as practicable to the date of the auditor’s report, and may include reading the trustee minutes, making enquiries of the SMSF’s lawyers concerning litigation or a divorce, and making enquiries of the trustee as to whether any subsequent events have occurred which might affect the financial report, such as sales of investments or significant adjustments to investment values.
The auditor’s response to the subsequent events depends on the potential for such events to affect the financial report and the appropriateness of the auditor’s opinion. For example, if the trustee decides to wind up the SMSF, this would be a material event requiring appropriate disclosure and amendments, such as valuation adjustments, to the financial report. Whereas, if an immaterial investment of the SMSF became worthless, this may not warrant any amendment.
If the trustee decides to wind up the SMSF, the SMSF still needs to be audited for the relevant financial year.
Upon winding-up, an audit is performed with increased focus in the areas of:
- liquidated investments – to determine whether they were realised for cash or transferred inspecie and what value was received;
- benefit payments – to test that they are bona fide, calculated correctly and paid to the correct individual and the recipients have met a condition of release;
- final income year that the tax and lodgement levy has been paid;
- cash – to ensure there are no transactions post balance date and that the balance is nil at balance date. This may include accounting for any tax refunds that were due to be paid to the fund; and
- rollovers – to test whether they were paid to and received by complying superannuation funds.
If the fund’s bank account remains open with a small balance in order to attend to the final wind-up expenses, such as tax payments and accounting and audit fees, the auditor may consider modifying their opinion. The auditor would undertake a post balance date review to assess whether the bank account has been closed.
Change of Auditor
When a SMSFs audit is transferred from one auditor to another, the new auditor needs to adhere to the requirements of ASA 510 to determine whether the opening balances contain misstatements that materially affect the current period’s financial report, whether the prior year closing balances have been correctly brought forward and that appropriate accounting policies are applied consistently. The auditor obtains the prior year signed auditor’s report and undertakes further investigation if the report was modified.
The Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006 (AML/CTF Act) is legislation designed to assist with the identification of, and to deter money laundering and terrorism financing. The AML/CTF Act sets out which entities are reporting entities and then imposes obligations on them when they provide one or more of the 'designated services' as set out in the AML/CTF Act. SMSFs do not provide a designated service and, accordingly, are not required to report under the AML/CTF Act. Auditors of SMSFs also have no formal AML/CTF reporting obligations, but they remain alert to potential money laundering or terrorist activities and report suspicions voluntarily, if appropriate.
Reporting an unsatisfactory financial position to the ATO is addressed in the compliance engagement, paragraph 312 of this Guidance Statement.
See regulation 9.38(1) of the SISR.
See regulation 9.35 of the SISR.
See regulation 9.17 of the SISR.