What Auditors Look For and Why It Matters

The Australian Taxation Office (ATO) and the Australian Securities & Investments Commission (ASIC) have intensified their scrutiny of Self-Managed Superannuation Funds (SMSFs), emphasising that compliance is a critical requirement for protecting retirement savings.  Trustees bear the ultimate responsibility for ensuring that their SMSF complies with the regulatory requirements, including the annual appointment of an approved, independent auditor. As non-compliance can result in severe penalties or trustee disqualification, the right accountant and auditor play a vital role in safeguarding your SMSF’s compliance.

Key Audit Focus Areas

Auditors are tasked with identifying high-risk areas currently targeted by regulators such as:

• Prohibited Loans and Related Parties: Loans to members or relatives are the most common compliance breach, accounting for significant reported contraventions.
• Asset Valuations: The regulations stipulate that trustees must value all assets at market value annually. The ATO expects auditors to verify values at the end of every financial year based on reasonable evidence and will specifically flag SMSFs that report unchanged property values for multiple years.
• Non-arm’s Length Income: Trustees must prove that any related-party transactions are on strictly commercial terms, or risk punitive tax rates of up to 45% on affected income.

Why a Robust Audit Matters

The SMSF auditor provides the essential integrity check that maintains the fund’s complying status and preserves its concessional tax benefits.

A comprehensive audit is far better for a SMSF than having the ATO discover contraventions during a later review.  A good quality auditor will identify any issues early and allow for trustees to make voluntary disclosures where required.  This generally leads to better outcomes, including the rectification of breaches and minimisation of penalties.

In contrast, if the ATO were to pick up these issues first, significant fines (up to $19,800 per trustee for prohibited loans) could be imposed and there is a risk of trustee disqualification.

Value of Professional Support

The SMSF’s accountant ensures that the financial records are accurate, providing the objective and supportable data that the auditor requires.  While their roles are separate, the accountant and auditor work closely together to ensure that the SMSF remains compliant, reducing the likelihood of regulatory intervention for the trustees.

Contact Pilot

If you would like to discuss any of the above, please contact Kristy Baxter, Simon Barry, or your Pilot advisor on (07) 3023 1300.