What the annual audit involves

The SMSF audit has two parts. The financial audit checks that the fund's financial statements are accurate. The compliance audit checks that the fund has met its obligations under Superannuation law. The auditor must be independent and registered with ASIC, and if breaches are identified, they may be required to be reported to the ATO through an auditor contravention report.

Appointing the auditor in good time

Trustees must appoint the approved SMSF auditor at least 45 days before the annual return is due. Leaving it later can make it difficult to complete the audit before lodgment deadlines. The auditor cannot audit a fund where their independence is compromised, so the person who prepares the accounts generally cannot also sign off the audit in a way that breaches independence rules.

Gathering financial records

The auditor will need the fund's financial statements and the records behind them: bank statements, Investment income records, contribution and rollover records, expense receipts, and evidence supporting the fund's tax position. Having these organised and reconciled before the audit begins reduces time and cost.

Preparing compliance documents

Beyond the numbers, the auditor examines governance and compliance documents. These include the trust deed, the current investment strategy and evidence it has been reviewed, Trustee meeting minutes, records of any changes of trustee, and signed trustee declarations. If the fund pays a pension, the auditor will look for the supporting documentation and, where required, an actuarial certificate.

Supporting asset valuations

The fund must value its Assets at Market Value each year, and the auditor needs objective, supportable evidence for those values. For listed shares this is straightforward, but for property, unlisted investments and collectables the auditor expects reasonable evidence — such as comparable sales, appraisals or independent valuations where appropriate.

Raising issues early

If a compliance problem is suspected, raising it with the auditor is generally more effective than allowing it to remain unaddressed. A reported breach does not automatically mean penalties; the ATO considers the nature of the breach, whether it has been rectified, and the trustees' overall conduct.

What happens if the auditor finds a breach

Auditors are required to report certain contraventions to the ATO through an auditor contravention report when defined tests are met. Minor issues that trustees have fixed are treated differently from serious or repeated breaches.

Common issues auditors identify

Recurring examples include a missing or out-of-date investment strategy, assets not held clearly in the fund's name, related-party transactions that are not at arm's length, insufficient evidence to support asset valuations, and personal use of fund assets. Loans to members and in-house assets exceeding the 5% limit are also recurring themes.