Investment aptness off limits to auditors

SMSF auditors must remember that judging the appropriateness of an SMSF trustee’s investment strategy is not part of their professional responsibilities, a superannuation specialist has warned.

“It is not the auditor’s job to say that this is a good investment, a bad investment or a very risky investment – the auditor is there to check that it is compliant with the legislation,” BDO Australia superannuation partner Shirley Schaefer told the CPA National SMSF Conference in Melbourne this month.

“So if the investment strategy says ‘we like derivatives, we think they’re fantastic and we have a very high risk appetite’, the trustee has met the compliance obligations.

“Auditors are overstepping the boundaries when they’re commenting about high-risk investments.”

Making a profit through investing was not necessarily an absolute, but rather a benefit, Schaefer noted.

“But certainly if a client is just constantly making losses, I think you have to talk about how that meets the sole purpose test of providing for their retirement,” she said.

She noted many SMSF investment strategies were poorly considered.

“I hate investment strategies because they are written and cast in the bottom [of the trust deed] and not updated, or they are poorly written, or they are a template document,” she said.

“It’s hard to get trustees to take it seriously.

“But they don’t have to cost a lot of money.

“If the trustees have a true philosophy about how they want to provide for their retirement, they will write their own.”

Addressing the issue of diversification within the investment strategy, she again clarified the auditor’s role.

“The investment strategy doesn’t have to say that you must diversify, but it does need to address diversification,” she said.

“It needs to talk about the fact that this is a single investment fund, for example, and so long as it does that and addresses that it’s not diversified, you don’t have a compliance problem.”

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