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Phuong Hoang Thi Ngo

Jun 23, 2022

Audit property oversea

in SMSF Technical Forum

A SMSF bought property off-the-plan in Dubai more ten years ago

There are receipts for payments (total about few hundred AUD )and Contract of sale at that time

Trustee of SMSF tried to contact seller/developer but unsuccessful many years and also unable to get any confirm document from Dubai. Building (Tower) also have not build until now

1/ I wondering that the trustees make minute and accountant record disposal so the cost base as investment loss in current year? or still keep it in assets ?

2/ Please show me what sections & regulars this fund has breached

Many thanks

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Jun 27, 2022

Hi Phuong

You refer to a "few hundred AUD". I assume this to mean a few $100,000's.

In relation to the any write off of the property I would request documentation to support that the seller / developer has gone into bankruptcy and or that the development is no longer to occur and nothing will be paid back. Further there should be documentation to support what action the trustees have taken to try & get back their investment. Yes if no ability to get any proceeds a minute should be done to write off the asset.

If the initial investment was made in accordance with SIS then probably there is no SIS contravention even if it is written off.

In terms of the compliance audit and whether there has been a breach of SIS and an auditor contravention report being required, I would consider the following sections / regulations of SIS:

1) Section 62 - sole purpose test. Does the investment meet the sole purpose requirements?

2) Section 109 - arm's length rules. Investments must be made on an arm's length / commercial basis.

In relation to the above compliance concerns I would be requesting an explanation from the trustees as to:

i) what due diligence was done in relation to the investment in overseas property? (this would be an audit issue re the year it was invested)

ii) does the Fund's investment strategy allow for such an investment to be made?(this would also be an audit issue re the year it was invested)

Once you have obtained an explanation to the above queries that may assist in whether you need to qualify the compliance audit (and lodge an audit contravention report).

In relation to diversification you can qualify on this if the trustees have not considered diversification as part of their investment strategy.

The audit report states in relation to regulation 4.09 re the investment strategy that "the fund trustee has an investment strategy, that the trustee has given consideration to risk, return, liquidity, diversification, the insurance needs of fund members, and that the fund's investments are made in line with that investment strategy. No opinion is made on the investment strategy or its appropriateness to the fund members."

Thanks

SMSF AAA