The SMSF audit process: What's involved?
SMSF accounts need to be checked by an auditor on an annual basis to ensure they comply with the relevant superannuation laws and regulations. It’s an important annual task required for all SMSF.
Why are SMSF audits necessary?
An SMSF audit is a legal requirement that provides an independent opinion on whether your SMSF is keeping records correctly and that its assets are maintained solely for members’ retirement benefits. The audit ensures that your SMSF is compliant with the law.
The compliance status of your SMSFs can affect its ability to make new investments. Tax concessions on contributions, income on your investments and the payment of lump sums or benefits can be disallowed if your SMSF doesn't comply with the law.
Steps in the SMSF audit process
The SMSF audit involves a comprehensive review of the financial statements and operational aspects of the fund. Auditors need to confirm that the information in the SMSF’s documents is an accurate reflection of reality.
The audit process usually encompasses two main aspects: financial and compliance. The financial audit focuses on the SMSF’s financial statements to make sure they meet Australian Auditing Standards whereas the compliance audit confirms that the fund adheres to superannuation legislation.
The steps for the auditing process are broken down below:
- Preparation: The independent SMSF auditor will ask the fund trustees (or administrator) for the necessary financial and supporting documents.
- Compliance audit: The SMSF auditors check whether the information in these documents follows the relevant superannuation rules. Some elements they will assess are the investment strategy, contribution rules and pension payments.
- Transaction test: The auditor then examines the SMSF's financial records in detail, including the transaction register, bank statements, and investment portfolios. The transaction records need to be accurate and valid to comply with the relevant legislation and adhere to the SMSF's investment strategy.
- Asset valuation: The auditor will work through relevant documentation to ensure all assets within the fund are accurately valued. For listed equities this process is straightforward however for property and unlisted assets the process is more complex with a range of documentation required in order to prove the accuracy of the stated asset value.
- Reporting: After completing all these checks, the auditor will provide a written report to the SMSF trustees. The report will detail if the SMSF is compliant with the relevant legislation or if not, should identify any non-compliance issues and provide recommendations on how to rectify them if needed.
How long does the audit process take?
Providing all required documentation to an auditor will be unique to each SMSF however once the auditor receives all the required documentation, they have 28 days to complete a report that will be submitted to the Australian Taxation Office (ATO).
What documents will I need for an SMSF audit?
The final list of documents will vary depending on the specific circumstances of an SMSF (including the investments held) however here are a few items that are generally needed:
- Financial statements that provide an overview of the fund's positions. These include the balance sheet, income statement, and cash flow statement.
- Bank statements to verify the accuracy of transactions in the financial statements.
- Investment statements that give details of the fund's holdings, usually for shares, managed funds and in some cases, property.
- Minutes of trustee meetings that record their decisions and show the fund's being managed in accordance with the relevant regulations.
- A trustee declaration demonstrating that they’re compliant with superannuation laws.
- Member statements summarising the contributions and withdrawals made by members during the financial year, and their current balances.
It’s best to consult with your auditor to determine the exact requirements for your SMSF.
For example SMSFs that have both accumulation and pension accounts also require an actuarial certificate that shows the income allocated to each member. According to the ATO, if your SMSF auditor requests more information, it must be provided within 14 days.
Who can audit an SMSF?
SMSF audits need to occur every year by an ASIC-registered SMSF auditor that meets Australian auditing standards. The auditor needs to be independent of the tax accountant and fund administrator preparing the financial statements. Trustees also can't audit their own SMSF fund or that of an immediate family member.
SMSF audit and your SMSF annual return
SMSFs must lodge an Annual Return which includes a regulatory and tax return for the fund. It should include the details of contributions received from members and the fund balance. It's still required even if you've made no contributions and the fund hasn't paid out any benefits during a financial year.
The SMSF trustees must appoint an approved auditor at least 45 days before the fund’s annual return to the ATO is due. Some information from the audit report is required to complete your SMSF's annual return. The ATO can also reject annual returns that are completed incorrectly and financial penalties may apply when lodging the tax return late.
How much does an SMSF audit cost?
The cost of an SMSF audit varies depending on your provider and which auditor is used. Some providers will charge a separate annual audit fee and annual accounting fee, others include the audit fee within the latter cost. The degree to which the process is automated and the complexity of your investments can affect the final fee.
According to the latest data from the ATO the average SMSF audit fees in 2020-2021 were $640. Comparatively for Stake Super customers, the audit fee is included in our annual administration fee of $990 which also includes SMSF set-up, ongoing administration and annual accounting and submission of the tax return.
How does the audit process work with Stake Super?
At Stake Super, we have streamlined the audit process to significantly reduce the administrative burden on trustees.
For customers that hold all of their SMSF investments on the Stake investing platform, we manage all of the above administrative tasks including the preparation of documents and engagement of an independent auditor so you are only engaged once the audit has been completed and the audited EOFY statements are ready for review and approval to be submitted as part of the fund’s annual return (which we also manage on your behalf).
For customers that hold some of their SMSF investments off the Stake platform (Stake Super Plus customers), the process is the same however we will request that members provide the relevant documentation for any off-platform assets (for example, equities not on Stake, unlisted investments, property, etc).
You invest, we handle the rest.
Speak to a specialist
Want to know more about Stake Super or have questions? Speak to one of our SMSF experts.
This does not constitute financial product advice, taxation, accounting or legal advice nor a recommendation that a self managed superannuation fund may be right for you. Before making any investment decision, we recommend that you consider your own objectives, financial services and needs and obtain personal financial advice about which investment options and portfolio types are right for you. Consider speaking with a licensed financial adviser to develop an appropriate investment strategy that takes into account your personal circumstances.
Megan is a markets analyst at Stake, with 7 years of experience in the world of investing and a Master’s degree in Business and Economics from The University of Sydney Business School. Megan has extensive knowledge of the UK markets, working as an analyst at ARCH Emerging Markets - a UK investment advisory platform focused on private equity. Previously she also worked as an analyst at Australian robo advisor Stockspot, where she researched ASX listed equities and helped construct the company's portfolios.