Understanding the independent auditor's report
How to read the SMSF independent auditor's report, what its two opinions mean, and how to interpret a qualification.
By Tash ·
The independent auditor’s report is the formal output of the SMSF audit. It is a prescribed form, and learning to read it tells you quickly whether a fund passed cleanly or whether the auditor identified a problem. This article explains the structure of the report and what each type of opinion means.
A prescribed two-part report
The report is an approved form, and the current version reflects the latest quality management standards, which auditors have been required to use for audits completed from the 2024-25 cycle. Using a superseded version of the form is itself a quality failure, so the form should always be the current one.
The report contains two separate opinions. Part A is the opinion on the financial report. Part B is the opinion on the trustees’ compliance with the specified provisions of the superannuation law. The two are formed independently, so a fund can pass one and be qualified on the other. The split between the financial opinion and the compliance opinion is the structure of every SMSF audit.
The financial opinion (Part A)
In Part A the auditor states whether the financial report presents fairly, in all material respects, the financial position of the fund and the results of its operations. A clean Part A opinion means the auditor found the financial report fairly stated within the bounds of materiality. A qualified Part A opinion means the auditor identified a material problem with the financial report, most often an asset that could not be verified or was not supported at market value.
The compliance opinion (Part B)
In Part B the auditor states whether the trustees have complied with the specified provisions for the period. The form lists the particular sections and regulations the auditor has tested. A clean Part B opinion means the auditor found compliance with those provisions in all material respects. A qualified Part B opinion identifies the specific provision that was breached.
The types of opinion
There are four possible forms of opinion on each part.
An unqualified, or clean, opinion means the report is fairly stated, or compliance is achieved, in all material respects.
A qualified opinion, expressed as except for, means there is a specific material problem, but it is confined and does not undermine the report as a whole.
An adverse opinion means a problem is so material and pervasive that the report as a whole cannot be relied on, or there is fundamental non-compliance.
A disclaimer of opinion means the auditor could not obtain enough evidence to form a view at all, and the possible effect is material and pervasive.
For most funds with an issue, the result is a qualified except for opinion on the affected part, identifying the specific matter.
Reading a qualification
When you see a qualification, the basis section is the part to read closely. It explains what the matter is and, where possible, quantifies its effect. A Part A qualification points to a financial problem, such as an asset that could not be valued. A Part B qualification points to a compliance breach, such as an in-house asset over the limit or a loan to a member. Many matters qualify both parts at once, for example an asset with no market value evidence, which both misstates the financial report and breaches the valuation requirement.
What a qualification leads to
A qualification often, though not always, goes hand in hand with a contravention report to the regulator. Where the auditor qualifies the compliance opinion, the underlying breach is usually run through the reporting tests, and a report is lodged where the criteria are met. So a qualified report frequently signals that the regulator has also been notified of the matter.
The bottom line
The independent auditor’s report carries two independent opinions, one on the financial report and one on compliance, each of which can be clean or qualified. Read the type of opinion to see whether there is a problem, and read the basis section to see exactly what it is. A qualification, especially on the compliance part, often means a contravention has also been reported.
This article is general information for professional readers and is not advice on any specific fund. The superannuation legislation and the applicable auditing standards govern in each case.
Common questions
- What are the two parts of the SMSF independent auditor's report?
- Part A is the opinion on the financial report, and Part B is the opinion on the trustees' compliance with the specified provisions of the superannuation law. The two are formed independently, so a fund can pass one and be qualified on the other.
- What are the four types of audit opinion?
- An unqualified or clean opinion, a qualified except for opinion for a confined material problem, an adverse opinion where a problem is so material and pervasive the report cannot be relied on, and a disclaimer of opinion where the auditor could not obtain enough evidence to form a view.
- How do you read a qualified audit report?
- Read the basis section closely. It explains what the matter is and, where possible, quantifies its effect. A Part A qualification points to a financial problem, and a Part B qualification points to a compliance breach.
- Does a qualified report mean a contravention was reported?
- Often, though not always. Where the auditor qualifies the compliance opinion, the underlying breach is usually run through the reporting tests and a report is lodged where the criteria are met, so a qualified report frequently signals the regulator has also been notified.