An annual audit is compulsory

Superannuation law requires the trustees of every SMSF to appoint an approved SMSF auditor to examine the fund each year. The audit is not optional and must be carried out by a qualified, independent professional.

The audit must be completed before the SMSF annual return is lodged, because the return requires the auditor's details and confirmation that the audit has been done.

Even a quiet fund needs an audit

A common misconception is that a fund with no contributions, no new investments or very little activity does not need an audit. The requirement applies regardless of how quiet the year was.

An auditor still checks that Assets are correctly held and valued, that the fund meets the sole purpose test, and that the trustees have met their obligations, none of which depends on the fund being busy.

What the auditor checks

The annual audit has two parts. The financial audit examines the fund's financial statements to confirm they are accurate and fairly presented. The compliance audit checks that the fund has met the requirements of the Superannuation legislation during the year.

The compliance side covers matters such as the sole purpose test, the Investment restrictions, in-house asset limits, related-party dealings, whether benefits were paid correctly and whether assets are held at Market Value with supporting evidence.

Auditor independence

The auditor must be genuinely independent of the fund. They cannot audit a fund in which they have a financial interest, and professional independence standards prevent, for example, the same person both preparing the fund's accounts and auditing them without appropriate safeguards.

Approved SMSF auditors must be registered with the Australian Securities and Investments Commission (ASIC) and hold an SMSF auditor number.

Appointing the auditor and handling findings

Trustees must appoint the auditor at least 45 days before the SMSF annual return is due. If the auditor identifies a contravention that meets certain tests, they must report it to the ATO through an auditor contravention report, as well as to the trustees.

The evidence typically required includes bank statements, investment records, contribution and benefit documentation, the trust deed, the investment strategy and evidence supporting asset values.