All too often we get calls or emails from clients and some non-clients even, who are late with getting important information back to their accountant, whether it is tax returns, information for their auditor, or engaging with their wealth planner! So, we thought we would find out what is the right information and when it is needed.
We are focussing on audits of SMSFs and trading entities. We have captured here the key areas of process, or events where you must advise your auditor.
- Make sure all SMSF transactions go through the fund’s bank account.
- Put an investment strategy in place. If you do not have an investment strategy, then please talk to our wealth planning team who will be only too happy to assist you.
- Tell your accountant when anything significant happens so they can produce a minute of the trustees meeting. e.g. buying or selling a significant asset.
- “I transferred money into or out of the SMSF bank account in error” – Tell your accountant straight away and agree the best way to I fix this.
- One of the members/trustees is seriously ill – Tell your accountant.
- A trustee is leaving Australia ‘permanently’ or for more than six months – Tell your accountant.
- SMSF trustees should work with their accountant to ensure that they don’t do anything to prejudice the tax advantaged 15% tax or tax free pension income.
- Maximum or minimum pension amounts must be drawn every year
- If you receive an auditors management letter, you should act on any matters raised, before they become reportable contraventions
- If you don’t have much money invested in your SMSF – check with your accountant to make sure it is still viable to maintain. It could be a good option to transfer your super monies into a public offer super fund.
- Have you considered having life and income protection insurance inside the super fund?
- SMSFs are not allowed to buy residential property from a member or related party.
- In a SMSF it can’t rent or provide a residential property to a family member or yourself.
- If part of your investment strategy is to collect art, then it can’t be displayed or leased in a SMSF member’s home or property (sole purpose test).
Other Audit Clients:
|#||Issue Description||Reason||Preferred course of action|
|1||Not keeping full records in a business-like manner.||It makes performing an audit difficult as sufficient appropriate audit evidence cannot be accumulated by the auditor to support an audit opinion and allow for a ‘clean’ audit report to be issued.||Full and proper record keeping needs to be employed – seek the advice of your accountant early.|
|2||AGM timing – ‘Not for Profit’ organisations sometimes schedule their AGM far too close to the end of their financial year.||Does not leave enough time for the financials to be compiled leaving enough time for an appropriate audit to be conducted.||Liaise with your accountant and auditor on achievable time frames and preferred AGM dates.|
|3||If your business has bank lending covenants that need to be maintained, an auditor may need to check these and report accordingly.The terms of your lending covenants might include not declaring a dividend large enough to create negative current assets. Or your interest coverage ratio needs to stay above a certain level.You should be aware of any loan or overdraft conditions imposed by the bank and work with your accountant to ensure they’re not breached.||If breached, at any time during the year, the bank may have the right to call in the loan. This could be inconvenient for you and require the loan to be quickly refinanced – if possible.||Be aware of lending conditions, maintain monthly or quarterly financials promptly and have your accountant regularly checking that covenants are met.|
|4||Directors not being aware of other factors that would require an annual audit to be conducted e.g. ASIC requirements.||If a shareholder (holding 5% or more of the shares) requests an audit; if the company becomes a Large Proprietary company, if the company has any two of the following – more than 50 employees; Assets of more than $12.5M; and turnover of greater than$25m.||Keep your accountant informed of changes with your company so they can advise if ASIC regulations require an annual audit.|
Robert Edwards is a partner at Chan & Naylor Audit Services.
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.