Auditing, Compliance, Investments

Don’t judge investment strategy

Investment strategy Auditors Judgement

An SMSF auditor’s role is to observe the compliance characteristics of an investment strategy and not assess its appropriateness for the fund members.

A superannuation legal specialist has warned SMSF auditors against passing judgment as to whether a fund investment strategy is appropriate as doing so would open them up to the perception they are providing advice.

“Your job is not to judge the strategy because if you do, you are also edging into financial services [advice]. So you don’t want to be doing that. You’re observing, not judging,” consultant lawyer Peter Bobbin told delegates at the Auditors Institute SMSF Auditors Day 2024 held in Sydney recently.

“You’re sending information, you’re highlighting, you’re bringing to attention [certain elements of the investment strategy] and you’re letting [the trustees] do the judging and the decision-making.

“It’s a seriously important distinction and it’s a big one. Avoid judging.”

Bobbin pointed out auditors can offer their opinion on how appropriate an investment strategy is for an SMSF client, but doing so is beyond what they are legally required to do. Further, he reminded practitioners of the types of situations where a person is deemed to have provided financial advice.

“Just to be clear … negative advice is financial services advice. Making a statement whereby the reasonable person would infer that an action will happen as a consequence of that is financial advice,” he noted.

“[So] making a statement where a reasonable person will infer that, as a result of the statement, someone might draw money or sell a particular investment, so it’s negative, that actually is financial services advice,” he reiterated.

According to Bobbin, passing judgment on an investment strategy opens up an added dimension of risk for auditors as if they are not licensed to provide financial advice, their professional indemnity insurance will not cover the action.

“So you don’t want to be judging the investment. You want to be observing whether there’s a strategy, but not judging it,” he said.

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