Unlisted investments detail a must

SMSF unlisted investments evidence

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SMSF auditors should examine several sources of evidence to ensure any investment a fund has in unlisted entities does not also qualify as a related-party transaction, a superannuation specialist has said.

“[When looking for] evidence an entity is unrelated [to the SMSF], you’d want to see an ASIC (Australian Securities and Investments Commission) search. You want to see a PDS (product disclosure statement) if there is one. Some of these bigger unlisted trusts and unlisted companies, they’ll actually have a PDS,” Vincents superannuation advisory director Brett Griffiths told attendees at the SMSF Auditors Association of Australia SMSF Conference 2022 on the Gold Coast last week.

“You’ll want to look at the share or unit registries. They’re not always in existence, but you have at least got to be asking for it if it’s not provided.”

Further, Griffiths suggested a file note from the fund’s accountant about the nature of the investment in question is another valuable source of information for auditors to establish the allocation to an unlisted entity is not a transaction involving a related party.

“Whenever [our clients] have unlisted investments, every year we basically prepare a two to three-page file note. It goes through all of the parties involved, how they might be connected, how they’re not connected, we go through it all,” he revealed.

While a client file note is of use to auditors, he advised it was a good risk mitigation item for accountants as well.

“At the end of the day, if it all goes [awry], I’m absolving my risk before it [goes any further],” he said.

To this end, he recommended accountants take a more proactive role in understanding unlisted entity investments as it will benefit both the client and the fund auditor.

“If I can identify a problem and solve it before [the auditor sees] it, [their] job is a lot easier [and the impact from the tax office is a lot less,” he said.

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