The non-tangible nature of cryptocurrencies requires SMSF members to keep accurate records, but many are failing to do so, opening funds up to a qualified audit report, an SMSF audit expert has warned.
BDO Australia superannuation partner Shirley Schaefer said there were a number of factors related to cryptocurrencies that created areas of risks during an SMSF audit, including being able to rely on what was reported to the auditor.
“The difficulty with cryptocurrencies is that it is not a tangible investment and that’s a difficulty from an audit perspective and there are also a number of different brokers or exchanges that can be used,” Schaefer said during a presentation at The Tax Institute Superannuation Intensive event today.
In terms of documentation, she added an SMSF auditor will be looking for statements from a broker or exchange that include detailed trading and year-end holdings and which also show the assets are in the name of the SMSF, but they would still need to make an assessment about their reliability.
“The question the auditor is going to ask is: ‘Can we rely on the information that’s coming from them?’” she said.
“This will be tested in years to come if we wind up with fraud cases, but we need to prove the existence and ownership of any currencies and need to know in what name is the crypto wallet being held.”
She noted more mainstream services were likely to provide better information and year-end prices could be obtained for the different types of cryptocurrencies available, but it was personal record- keeping that was still a problem.
“We often find there is a lack of documentation and people just don’t download that information,” she said.
“This can become particularly difficult if all the record-keeping is done online and there are no holdings at year end and the account has been closed.
“If the trustees have not downloaded those reports during the year, there is nothing to verify any gain or loss on the trading in cryptocurrencies and with no paperwork, depending upon the materiality, it is likely to lead to a qualified report.
“Most people who are investing in cryptocurrency on a serious basis will make sure their paperwork is in place, so it is going to be those that are dabbling in this sort of thing that are not as diligent with their paperwork.”
