The ATO has acknowledged the concept of materiality is challenging for SMSF auditors when reviewing an investment strategy and has suggested marginal situations may not need to trigger an auditor contravention report (ACR).
Speaking at the SMSF Auditors Association of Australia Conference held in Sydney last Friday, ATO superannuation and employer obligations director Paul Delahunty told attendees: “In relation to contraventions of [Superannuation Industry (Supervision) regulation] 4.09, a material contravention should result in a qualified auditors report and lodgement of an ACR. Now this is a difficult line that auditors are going to have to draw in relation to investment strategies and we understand that.
“[In relation to] that concept of materiality, often we’ll find instances where there is creep towards an investment strategy not meeting the requirements. In those instances it may be more appropriate that they are governed by a management letter [to the trustees].”
However, Delahunty emphasised the treatment of these situations from an audit perspective usually is determined by the application of the practitioner’s professional judgment.
“[But] in instances where they determine that there is a material contravention, they should be issuing a qualified audit report and an ACR to the ATO,” he said.
He took the opportunity to reinforce the evidence auditors can rely upon to give themselves comfort an SMSF investment strategy has been reviewed by the fund trustees.
“Evidence an investment strategy has been regularly reviewed may be found in updated investment strategies, notations on a current investment strategy or information contained in trustee minutes,” he noted.
He also stressed the ATO’s preferred approach from trustees toward this document in general.
“[The investment strategy] should be in writing [even though] there is no requirement it needs to be. However, best practice would determine that that would be an appropriate way in which to capture an investment strategy,” he said.