Loan statements not proof of title

A superannuation lawyer has warned auditors against accepting any banking documentation pertaining to limited recourse borrowing arrangements (LRBA) when looking to establish the title of the SMSF asset in question as it may not satisfy the professional verification standards.

To this end, DBA Lawyers special counsel Bryce Figot noted the practice of obtaining the bank statements relating to the loan is not sufficient to establish whether the asset acquired by the LRBA is in the SMSF’s name.

“[If you have been doing that], it is insufficient [proof of title]. If you get audited by the ATO, you will be in trouble,” Figot told professionals who attended a recent technical webinar hosted by the Auditors Institute.

“Merely having loan bank statements is insufficient [evidence of asset title].”

He indicated auditors need to witness the loan agreement from the bank, among other documents, to achieve this outcome.

Further, he drew the conclusion if auditors were adhering to this practice, it might be indicative of poor compliance standards that may need addressing.

“Honestly, if you have been making that error, and I’m going to call it an error, you might be making other errors,” he noted.

He took the opportunity to suggest a course of action auditors can follow if they are in doubt over whether their validation procedures are compliant.

“What I advise you to do is go to [the ATO’s website] and search for QC (quick code) 45566. [It details] the ATO’s minimum expectations [on this subject] and read every bit of it closely,” he said.

He pointed out auditors should not believe following the practices provided in QC 45566 will guarantee they will be meeting the highest possible standards with regard to their SMSF audit procedures.

“Remember this is not all [the ATO] wants you to do. This is a minimum expectation and you’ve got to follow that really slavishly,” he recommended.