What an SMSF audit is and why it is mandatory

Every self-managed superannuation fund in Australia must be audited each year by an approved SMSF auditor before the fund lodges its annual return. This is not optional, and it is not a service the trustees can skip in a quiet year. The audit is a statutory requirement, and the trustees cannot lodge the fund’s annual return until it is done.

The two parts of an SMSF audit

An SMSF audit has two distinct components, and the auditor forms a separate opinion on each.

The first is the financial audit, often called Part A. Here the auditor examines the fund’s financial report and forms an opinion on whether it presents fairly, in all material respects, the financial position and operation of the fund. This involves testing that the assets exist, are owned by the fund, and are recorded at market value, and that income, expenses and member balances are accurate.

The second is the compliance audit, often called Part B. Here the auditor tests whether the trustees have complied with the specified provisions of the superannuation law, including the sole purpose test, the in-house asset rules, the restrictions on related party dealings, the contribution and benefit payment standards, and the requirement to value assets at market value. The auditor forms an opinion on compliance with each of those provisions.

A fund can receive a clean opinion on one part and a qualified opinion on the other, because the two are assessed independently.

Why the law requires it

The audit exists because of the structure of an SMSF. Unlike a large fund run by a professional trustee, an SMSF is run by its own members, who are usually also the trustees. They control the investments, they benefit from them, and there is little separation between the people making decisions and the people who gain from them. The annual audit is the main external check that the fund is being run within the rules and genuinely for retirement, not for a present-day benefit to the members.

The regulator relies on auditors as the front line of the system. When an auditor identifies a serious breach, they are required to report it, which gives the regulator visibility it would otherwise not have across hundreds of thousands of funds.

Who can perform the audit

Only an approved SMSF auditor can conduct the audit. To hold that status, a person must be registered with the corporate regulator, having met competency, qualification and experience requirements, and must maintain ongoing professional development and professional indemnity insurance. The auditor must also be independent of the fund, which means, among other things, that they cannot audit their own fund, a fund of a close family member, or in most cases a fund whose financial statements their own firm prepared.

What it means for accountants

For an accountant who prepares SMSF financial statements, the audit is a separate and independent step that must be carried out by someone able to act independently. Preparing the accounts and then auditing them yourself creates a conflict the rules do not permit, except for narrowly defined routine work. The practical consequence is that most accounting firms refer their SMSF audits to an independent auditor, and plan their timetable so the auditor can be appointed and complete the work before the annual return is due.

The bottom line

The SMSF audit is a mandatory annual check, split into a financial opinion and a compliance opinion, performed by an independent registered auditor. It exists because the people who run an SMSF are also the people who benefit from it, and the audit is the main safeguard that the fund is being run lawfully and for its true purpose.

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This article is general information for professional readers and is not advice on any specific fund. The superannuation legislation and the applicable auditing and ethical standards govern in each case.