The ATO has issued a notice to SMSF trustees holding assets managed by a service organisation, such as in wrap accounts or investment platforms, to clarify the reasons why their fund’s audit report may be qualified.
In a recent update on its website, the regulator advised trustees in this category might face audit challenges as the fund does not hold these assets directly and it can be challenging to obtain appropriate evidence to substantiate the ownership of assets.
“When it comes time for the annual SMSF audit, SMSF auditors will request evidence to confirm the assets in the SMSF’s financial statements,” the ATO said.
“For assets managed by a service organisation, it can be difficult for auditors to confirm ownership of the asset. This may be the case even when an annual investment statement and other audit documents are provided.
“Where it’s the auditor’s opinion there is insufficient evidence to verify ownership of the asset, they will qualify Part A of the independent auditor’s report (IAR).
“Part A of the IAR relates to the financial side of the audit. In this scenario, a Part A qualification may be unavoidable even though the SMSF trustees may have complied with all their obligations.”
To address this, the ATO encouraged trustees to consult their auditors if they have concerns about the results of an audit report.
“If your SMSF auditor has qualified Part A of the IAR, you should discuss this with your auditor to understand the reasons why and what it means for your SMSF,” it said.
Additionally, the ATO directed practitioners to Guidance Statement GS009, available on its website, for audit considerations when SMSFs use investment management service organisations.
The guidance document recommends SMSF auditors seek an Australian Auditing Standards 402-type service auditor’s report, which can serve as indirect evidence of asset control, which may reduce the likelihood of issuing a Part A qualification.
