SMSF auditors taking on new clients with existing investments that may breach the current non-arm’s-length income (NALI) rules should consider how they ring-fence those arrangements to prevent them from being held accountable for past mistakes, an audit practitioner has warned.
Super Sphere director Belinda Aisbett said qualifying an opening balance and excluding past investments in the auditor representation letter may not be sufficient and practitioners should make clear declarations as to what would not be covered by their work.
Speaking at the SMSF Association National Conference 2025 in Melbourne today, Aisbett questioned whether a qualified opening balance audit opinion when taking on the fund as a new client would protect the auditor from historical issues.
“Should we as auditors make extra points in a management letter or communications saying any pre-existing investment issues that might come back to bite are not the responsibility of the auditor for this current financial year?” she said.
“I have that in the current version of my audit representation letter, which says the effect of any related-party relationships or transactions do not cause the financial report to be misleading or materially misstated.
“It also states any capital acquisitions or expenses incurred from a related party, be they specific nexus or general nexus, have been reviewed, considered to be market value and therefore arm’s length.
“However, we’re the ones that write the rep letter. We’re told what we want to hear, so it isn’t as exciting a piece of evidence or protection we might hope it might be.
“So maybe we need to think about some alternatives and have our engagement letter, which is a weightier piece of audit and litigation evidence, actually state: ‘If you’ve got historical issues that come back to haunt in a year, they’re not my responsibility.’
“These are the sorts of things we might think about putting in our engagement letters to make sure this kind of case doesn’t come back to concern us as the auditor.
“It shouldn’t, and as much as I might have signed off the financial statements that everything was free from material misstatement, the reality is the ATO can disagree with that and who is responsible then for any losses.
“Is it the auditor’s responsibility? I don’t think so, but we want to protect ourselves as much as possible, so that if somebody disagrees with our assessment of our risk, that we’ve got some strategies or some audit evidence in our files that protect us as much as possible.”
