Auditing, Investments

Investment strategy an audit risk

SMSF investment strategies auditors.

Monitoring and approving the SMSF investment strategy is continuing to cause angst and confusion among auditors servicing the sector.

Demonstrating proper fulfilment of their professional duties with regard to the adequacy of SMSF investment strategies is continuing to cause auditors great concern.

The issue was raised at the SMSF Auditors Association of Australia Conference held in Melbourne last week, with practitioners expressing angst over the generic nature of a large number of investment strategies in the sector and the action they should take in attempting to satisfy their own legal requirements in this area.

“We’re not the ones writing these strategies. Clients are going out to all sorts of advisers and very few of them are actually tailoring [them for the client],” one delegate said.

It was recognised auditors can pick apart generic investment strategies on many levels, such as the nominated equity-like returns the SMSF is expected to achieve when the only asset the fund holds is cash.

“So you write a management letter, pick the problems out and get the clients to address it. They go off to someone, get a new strategy prepared that sort of addresses everything, but 12 months later the [return] ranges are out or they’ve dropped off something,” the delegate noted.

“What’s the ongoing solution for auditors? Clients don’t want to go to advisers every year to acquire a new investment strategy so I’m really curious to understand what [we’re supposed to do].”

Advisers Digest founder Peter Johnson agreed the monitoring of the investment strategy is a challenge for auditors, but pointed out they will face regulator punishment should they ignore any strategy flaws during an audit, leaving them with only a couple of courses of action.

“Unfortunately [what the law requires is] if a client hasn’t given you a compliant investment strategy, you [should] give them an opportunity to fix it or you [report the breach to the ATO],” Johnson said.

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