Auditing, Investments, SMSF, Strategy

Poor investment strategies qualified

Investment strategy

The employment of a generic SMSF investment strategy has provided sufficient grounds for a qualified audit report for a prominent practitioner.

A prominent SMSF auditor has revealed his firm has qualified funds that have employed a generic investment strategy without any specificity relating to the members’ needs and set of circumstances.

“We have qualified [these funds] because [the investment strategies they have in place] are useless,” Saul SMSF founder and managing director David Saul told delegates at the recent SMSF Auditors Association of Australia Conference 2023 held in Sydney.

Saul gave an example of the type of investment strategy that has led his firm to taking this action in the past.

“I’ve seen so many of these investment strategies that have all of the asset classes [with allowable portfolio allocations of] zero to 100 per cent and have a very generic line to say ‘yes we’ve considered the insurances of the members’. Not each member, but they’ve considered insurances,” he said.

“To me it’s just a worthless piece of paper because that type of investment strategy has no point or fine edge to it. There is no compass to [determine] the direction of that fund.”

Saul reminded auditors that when presented with investment strategies like these, they must be satisfied the trustees themselves have considered issues such as appropriate asset holdings and insurance coverage and not rely on the assumption an accountant or adviser has done so.

He stressed the importance of the role auditors play in ensuring an SMSF has a proper investment strategy and how the response from clients is irrelevant in these circumstances.

“We’re trying to protect the trustees. They are our clients. We’re engaged directly with the trustees in the fund so a good auditor, in my opinion, should be able to take the hands of the trustees and say: ‘Let’s work together, these are your obligations and you need to think about what you’re doing with the investment strategy,’” he said.

“If I let something like that slip through, then I’m not exercising my obligation to the trustees.”

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