SMSF auditors reviewing assets held in a wrap account should not solely rely on a Type 2 report issued by the platform as the use of that alone will not meet auditing standards, an audit practitioner has highlighted.
Veritas Audit director Daniel Prunty said under auditing standard ASA 402, auditors had a responsibility to obtain sufficient appropriate evidence when a fund uses the services of a wrap administrator.
Speaking at the SMSF Association Audit Day 2025 today, Prunty noted this evidence has to cover the nature of services provided and transactions undertaken, the level of interaction between the fund and service provider and the contractual terms that governed those actions, and was typically provided in a Type 2 report.
“If we get to the point where we’ve got a Type 2 report that covers everything we want it to cover, what evidence does that actually then provide us?” he said.
“The answer isn’t actually that useful because it provides us only with the reliability of controls of the wrap administrator.
“It doesn’t eliminate the need to perform substantive procedures for classes of transactions and account balances that are material, but under the standard it enables us to reduce the extent of procedures that might otherwise have been necessary.”
He added these procedures should include the inspection of records and documents held by the SMSF, as well as those held by the wrap administrator since it may also hold managed fund tax statements, dividend slips and buy and sell transaction notices, which will also highlight if any trustee-supplied documents are fraudulent.
Prunty pointed out that collectively these steps should meet the auditing standards and generate a number of key pieces of evidence.
“If we are working on an SMSF that has an investment in a wrap platform, we will be able to get our sufficient, appropriate audit evidence through a combination of the Type 2 report that we are satisfied with, an annual investor statement, an external confirmation from the service organisation and an analytical review of the investment procedures.
“Simply placing a Type 2 report on the audit file along with the annual investor statement will not be sufficient and appropriate audit evidence. Review of the adequacy of the report and additional substantive procedures are required.”
