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Auditing, Investments

Whole of wealth picture beyond auditors’ scope

auditors investment strategy SMSF

A technical manager has stipulated SMSF auditors cannot assess the adequacy of a fund’s investment strategy in the context of the trustee’s assets held both inside and outside of super.

Auditors cannot take into account an individual’s entire wealth portfolio, including assets inside and outside of super, when assessing the investment strategy of that person’s SMSF, a technical manager has said.

“It depends how they want to document that in the investment strategy but from an audit perspective we can’t audit what’s outside the fund,” ASF Audits executive manager technical services Shelley Banton noted when asked about this subject during a recent webinar hosted by Accurium.

“So, if a trustee says I’m heavily invested in property because my shares are all held outside my super fund, that’s all well and good, but we don’t know if that is actually the case,” she added.

“Unless they have other reasons as to why they’re in property, all we can do is take on face value what they’ve got as documented evidence in their investment strategy.”

With regard to the ease of comparison between the assets held in an SMSF versus the fund’s investment strategy, Banton warned auditors that recent case law made it imprudent for them to place any reliance on automated administration systems.

“Let’s go back to the Cam & Bear case where the assets were misclassified through user error. If that was the case in the administration software that’s never going to be picked up correctly by that technology and that’s why we can’t use it,” she explained.

“So databases are like anything – if you put rubbish in you get rubbish out and auditors can’t rely on that as a result.”

In the Cam & Bear v McGoldrick case the classification of the SMSF assets was incorrect resulting in them appearing as cash investments on the balance sheet rather than unsecured loans which was their true nature. Further the auditor of the fund was held liable for losses incurred resulting from this discrepancy he failed to detect.

SMSF auditor focus on investment strategies have been heightened since the ATO issued letters to 17,700 funds recently scrutinising the adequacy of their investment strategies against the assets actually held.

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