Key Highlights

•  The fund must have been audited by an approved SMSF auditor for every year since it was established, including the final income year.

•  The auditor checks the wind-up conditions, member agreement, financial statements, asset disposals at market value and that benefits were paid correctly.

•  If the bank account stays open for a final tax refund, the auditor should obtain a written representation, which may lead to a narrow qualification.

When trustees decide to close a self-managed super fund, it is natural to focus on selling assets and moving money. Yet the step that most often determines when a wind-up is truly finished is the final audit. Without it, the final annual return cannot be lodged, and without the final return the ATO will not close the fund's record.

The ATO publishes specific guidance for auditors examining a fund that is winding up. Reading it from the trustee's side is a useful way to understand what evidence will be requested and where delays tend to arise.

Every year must be audited, including the last

The ATO's wind-up guidance for trustees says the fund must have been audited by an approved SMSF auditor for every year since it was established. Any outstanding audits must be completed, along with the audit for the final income year, before the outstanding and final annual returns are lodged.

This matters for funds that have fallen behind. A fund with two or three years of unlodged returns cannot simply jump to a final return; each earlier year needs its own audit and lodgment.

What the auditor will check

The ATO's guidance for auditors of winding-up funds lists the matters the auditor needs to confirm. In summary, the auditor checks that:

  • the wind-up conditions in the trust deed were met;
  • all members agreed to the wind-up in writing;
  • the financial statements correctly reflect assets, liabilities, income, expenses and the final allocations and payments to member accounts;
  • overdue accruals were settled by the wind-up date, other than estimated tax accruals awaiting the final assessment;
  • assets were disposed of at market value, supported by verifiable evidence;
  • collectables sold to a related party, including as an in-specie payment, were supported by a written valuation from a qualified independent valuer;
  • benefits were paid only to members who met a condition of release, to eligible beneficiaries or to a legal personal representative; and
  • benefits for members without a condition of release were transferred to a complying super fund.

Trustees can make the auditor's job far simpler by assembling this evidence before the engagement begins: signed minutes and wind-up agreement, sale contracts and settlement statements, valuation reports, rollover confirmations, written confirmations of conditions of release and the final bank statements.

The bank account issue

A practical tension arises because the ATO also asks trustees to keep the fund's bank account open until the ATO confirms the wind-up. The final tax assessment or a refund may only arrive after the audit is complete.

The auditor guidance addresses this directly. If the account remains open to pay a final tax liability or receive a refund, the auditor should obtain a written representation from trustees that later transactions will comply with superannuation law. Tax-related transactions are to be dealt with in line with Part 6 of the SIS Regulations. Where the account stays open, the ATO says the audit report should be qualified, because transactions after the audit cannot be verified.

Trustees should not be alarmed by a qualification on this narrow ground. It reflects the timing of the final transactions rather than a finding of wrongdoing. It is still worth discussing in advance with the auditor so there are no surprises.

When problems are found

If the auditor identifies non-compliance or cannot obtain enough evidence, the report will be qualified. Where a reportable contravention has occurred, the auditor must lodge an auditor contravention report with the ATO and notify the trustees in writing. Even where no issues arise, the ATO expects the auditor to send a final management letter reminding trustees to lodge the final return, keep the bank account open as required and retain records for at least 10 years after the final return is lodged.

Timing the engagement

The auditor guidance does not set a fixed date for the final audit, but trustees should allow enough time between the wind-up date and their intended lodgment. Engaging the auditor early, sharing a draft timetable and confirming what the auditor will need can shorten the process considerably.

Hypothetical example

A hypothetical fund sells its last shares in February and rolls both members' balances to a retail fund in March. A small tax refund is expected after the final return is processed. The trustees provide the auditor with the rollover confirmations, sale records and a signed representation about the open bank account. The auditor issues a report qualified only for post-audit transactions, the trustees lodge the final return, and the refund is received before the account is closed.

Takeaway

The final audit is the gateway to closing an SMSF. Trustees who gather evidence in advance, understand why a narrow qualification may be issued while the bank account stays open, and keep records for 10 years after the final return will be well placed to finish the process smoothly.