SMSF auditors should clearly explain the reasons for a qualification in an audit report, especially when it relates to asset valuations, as trustees may not fully understand the implications of a compliance breach and how the ATO views them, according to an audit practitioner.
“A qualified audit doesn’t mean that your SMSF is not complying and that you’re up for penalties. I think sometimes [clients] get really worked up [over a qualified audit],” Red Willow Super managing director Marjon Muizer said at Class Ignite 2024 in Sydney last week.
“Generally there’s no need to panic unless the trustees have intentionally done something wrong and it’s a financial detriment to the fund or the ATO is losing out on tax. The ATO will consider the breaches they get on a case-by-case basis and they’re generally quite reasonable in their approach.
“You need to manage the client’s expectations. Just because the audit is qualified, it’s not necessarily a bad thing because with some private investments that’s simply what will happen if there’s not much information on it.
“[For example], if there is a breach for someone taking all the money out of the fund and putting it in their mortgage, the ATO would look at that very differently than someone having invested in a private company, like a start-up, and they just cannot get anything useful for the market value.”
While acknowledging it can be challenging to gather objective and supportable evidence for certain assets, she reminded trustees this did not remove their obligation to do so.
“It’s just difficult to find evidence for certain investments, like private companies or loans, or maybe the trustees, they have received evidence but they just don’t like it, they don’t quite agree with it,” she said.
“They’re simply considered high-risk assets from an audit point of view. Sometimes the audit evidence for those kind of assets is a little bit average, but the audit requirements are still exactly the same as for any other type of asset.”
