Chartered Accountants Australia and New Zealand (CAANZ) has expressed its support for the move by the ATO to scrutinise the investment strategies of nearly 18,000 SMSFs and has made recommendations on the role auditors, tax agents and administrators potentially should play in process.
With regard to SMSF auditors, the professional body pointed out these practitioners need to focus on their obligations in conjunction with regulation 4.09 of the Superannuation Industry (Supervision) (SIS) Regulations, which defines the operation standard for an investment strategy.
CAANZ here emphasised the auditor’s primary role is to ensure compliance with regulation 4.09 and not to make a judgment on whether the particular investments are overall suitable for a particular SMSF.
To this end, the accounting body said on its website that the main focus for an auditor should be to have the client tell them what they are trying to achieve and then demonstrate how they have gone about putting those thoughts into concrete action.
It reiterated auditors must check the SMSF has an investment strategy that has given consideration to the elements stipulated in regulation 4.09, such as levels of risk involved, liquidity required to execute the strategy and the insurance needs of members.
In reference to tax agents and SMSF administrators, CAANZ suggested these practitioners can help with investment strategy compliance by asking what the fund’s objectives are, the assets the fund intends to invest in and the evidence they will achieve the stated objective, how the fund’s cash-flow requirement will be satisfied by those investments, how the fund defines diversification and whether the insurance needs of the members have been taken into account.
While it confirmed its support for the ATO’s initiative in this area, it revealed reservations were raised with the regulator about including in the letters to SMSFs the associated financial penalties should trustees be found to have breached the conditions of regulation 4.09.
“The ATO, however, was concerned that some trustees might ignore the communication (or later complain) if the letter did not sound an adequate warning about the legislative requirements and the penalties that could apply,” it said.
Calls had earlier been made for auditors not to alarm themselves over the ATO letters.
