Auditing, Compliance, SMSF

Investment decision evidence required

SMSF Investment strategy Documentation Supporting evidence

An SMSF investment strategy must be documented along with the decisions the fund’s trustees have made in order to adhere to it.

A senior financial services executive has emphasised the importance for SMSF auditors to ensure trustees not only have a written investment strategy in place, but also documentation pertaining to the asset allocation decisions made for the fund.

Further, BDO senior manager Simon Conolly noted this discipline needs to be applied to all investment actions the trustees make.

“You want to see trustee minutes and other supporting documentation, which might be advice from a recognised financial adviser, on the investments that are held within the fund and whether an [asset] should be acquired or why it wasn’t acquired in certain circumstances and the appropriateness of the preferred investments that are being maintained,” Conolly told delegates at The Auditors Institute Auditors Day 2024 held in Sydney recently.

“[You want to see] not just the minutes, but the supporting documentations that do show that the trustees have regularly reviewed that investment strategy so you can ensure it does continue to conform with the objectives of the fund or that perhaps the objectives of the fund have changed [and] that there has been a change to the investment strategy.”

He suggested there are certain significant the situations that could necessitate an investment strategy amendment.

“An investment strategy could change for a number of reasons, for instance, when a new member joins, [when] a member leaves the fund, [upon] the death of a member, where a pension commences [and dictates] a need for more liquidity that might require a restructure of the investment strategy,” he said.

In addition, he stressed if an investment strategy has incorporated asset class bands and the portfolio allocations of the fund fall outside of the specified ranges, documentation must be generated to explain why this situation has occurred and the remedial action that will be taken to make sure the compliance issue is rectified.

He said reworking the investment strategy could also serve as a solution in these circumstances.

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