The quality of evidence an SMSF auditor gathered and used to assess the compliance of a particular superannuation fund must match the risk characteristics of the fund’s assets, according to a specialist industry practitioner.
“You might have a $400,000 house in Blackburn and you might have a $400,000 house in Bundaberg with completely different risks and the audit evidence you get has to be level with the risk,” ARC Super director Ashley Course told the Institute of Public Accountants National Congress in the Hunter Valley last week.
Course added if the auditor could not obtain sufficient evidence, then a qualified audit report would have to be prepared.
He said SMSFs with collectable or personal use assets were particularly challenging for auditors in knowing the appropriate evidence to gather when auditing the fund.
In particular, he warned practitioners relying on a representation letter in certain circumstances was simply not good enough.
“How many people get reliable evidence a person is not using a collectable asset for personal use? Most people will rely on a representation letter,” he said.
“How reliable is a representation letter? On a scale of one to five, I’d give it a 0.5.”
Although he did not rate the trustee representation letter highly as an appropriate piece of audit evidence, he said if the collectable asset in question did not make up a significant portion of the SMSF’s total assets, the representation letter could still suffice in conjunction with other measures.
“If it’s an asset making up 5 per cent of the whole fund’s assets, and assuming that is correct, the risk is not very high and the quality of the trustee representation letter matches that risk,” he said.
“But if it’s a $90,000 asset in a $100,000 fund, the risk is high and the representation letter is not sufficient any more.
“You’ve got to get better evidence and if you can’t get it, and there is a gap between the evidence and the risk, qualify the audit report.”
