SMSF auditors should be questioning whether a third party is related where a fund is involved in a property arrangement with that party or receiving services from it rather than only relying on a declaration from the fund’s accountant or in its annual financials.
Seamless SMSF specialist auditor and head of technical and training Frank La Spada said asking if a party was related was unlikely to be sufficient audit evidence and the level of questioning an auditor would undertake came back to the type of information the fund provided.
“This is a really good question and what it comes down to are the level of details that are within the documents that your auditor has been provided with in the first place,” La Spada said during a webinar conducted by Accurium late last week.
“What we generally see is that a lot of our clients will give a set of financials and we will also have some form of corporate diagram where we can actually do a little bit of testing ourselves.
“From that diagram and testing we can see percentages of ownership so we can make a little bit of an assessment before asking some queries to our clients.
“If the client has essentially got no information and they are not sure and they can’t really confirm why they are not a related party, that is where we may need to ask further questions.”
He said the need to show the relationship between parties was often made on a case-by-case basis and the structuring of an investment or other arrangement and clarifying that would make an audit easier.
“If you have a corporate diagram, your auditor may request that for more info, which may also give the fund a little bit more comfort about its arrangements,” he said.
During the presentation, he also noted a current lease arrangement was a key document both the SMSF and the auditor should view each year where a related party property arrangement was taking place within a fund.