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My apologies for the long post but look at it like a case study. This post is for discussion and seeing the different opinions of the auditors on this forum.
Let me first vent then I will get to the point. I am auditing a fund with breaches. I send queries to the client to clarify some of the breaches. He goes to another auditor and discusses the breaches. The other auditor gives him advice then he comes back to me and asks me to do the same as what the other auditor advised him to do. (Not happening) Hello, there is always a difference of opinion and the other auditor does not have all the information. We are not going to go into the territory of manipulation and undue influence of the auditor by the accountant.
With all the changes in rules for names, naming conventions and documentation which has become a problem for most people e.g director ID. The SMSF is required under S52B(2)(d) of SISA and regulation 4.09A of SISR to hold the SMSF assets in the trustee name on behalf of the trust (legal name).
On the SMSF deed the individual trustees are Joseph Blogs and Maria Blogs (husband and wife). When the fund provided documentation for audit, a bank account ownership is in the name of Joe & Mary Blogs ATF SMSF and a bank account only in the individual Joe Blogs name no mention of the SMSF, shares held are in the name Joseph Blogs ATF SMSF, all rental property documents only have Joseph Blogs no mention of the superfund. None of the assets are held in the legal name as per SMSF deed.
The advice the accountant got from the other auditor, is to get a deed of trust between Joe Blogs or should it be Joseph Blogs, as there are 2 different versions, that he holds the asset in trust for the SMSF Mary or Maria to sign the document so the audit passes. Poor Mary or Maria gets not mention on the title of the assets except 1 bank account and in my opinion has no say in the SMSF, even with a deed of trust, as Maria will follow the husbands instructions.
Now this is where your opinion/experience is valued. The questions are:
1. Would you accept a deed of trust if there is only 2 individual trustee/members, husband and wife, in the fund and the assets held in various version of the names on the title of the assets? Now remember the various versions are not the legal name.
2. Would you need/accept different deed of trust for the different variation of the names without verifying the different version of the names are the same person on the SMSF deed?
3. What is the responsibility of the auditor in the situation like this, when you know its wrong but there is a deed of trust in place, as Maria has signed and there is no mentioned of Maria on the title of the assets of the SMSF?
4. What would the actions of the accountant towards the auditor be classified? (other than kicking him out the door with his SMSF)
Hi Wafaa
Thanks, this is a common issue & a similar queries have been raised previously.
Section 52B(2)(d) of SIS & SIS Regulation 4.09A both require that trustees keep assets of the Fund seperate from personal assets. It is Regulation 4.09A that the auditor signs off on in their audit report.
Re asset ownership Regulation 4.09A of SIS requires that:
"A trustee of a regulated superannuation fund that is a self managed superannuation fund must keep the money and other assets of the fund separate from any money and assets, respectively:
(a) that are held by the trustee personally; or
(b) that are money or assets, as the case may be, of a standard employer-sponsor, or an associate of a standard employer-sponsor, of the fund."
My view is that if the investments are in the name of 1 of the trustees in trust for the Fund it is technically not a breach of Regulation 4.09A as the assets are kept separate from any personal assets (as long as the asset is in the name of the Fund). On that basis if the asset did not record both trustees as the owner but the asset is recorded as being owned by the Fund it is arguably not a reportable breach in the ACR but I would raise the issue in your management letter to the trustees.
An acknowledgement of trust should be requested to state that the 1 trustees hold the shares / investments in trust for the Fund. This would be best practice.
The ATO gives guidance on Regulation 4.09A of SIS & states at:
"The auditor should obtain evidence that the fund’s money and assets are held separately from money and assets held personally by the trustees or a standard employer-sponsor by:
· sighting asset ownership documents, including bank statements, to verify SMSF assets are held in the name of trustees on behalf of the fund (for example, R & J Smith as trustees for the Smith SMSF or R Smith Pty Ltd as trustee for the Smith SMSF) and not in the name of the trustees alone
· where State law prevents ownership in the SMSF’s name, checking for alternative documentation that protects the fund’s assets (for example, a valid declaration of trust)
· reviewing transactions on bank statements to ensure fund money is not mixed with money belonging to related parties of the SMSF.
Where there has been a change in trustees, the auditor should obtain evidence that ownership documents reflect the change."
In relation to your specific example I would:
Qualify the audit report re SIS Regulation 4.09A (assuming it is material) (& lodge an Auditor Contravention Report) if there is an asset that should record the Fund as the owner but does not. In your example you referred to "a bank account only in the individual Joe Blogs name no mention of the SMSF".
In relation to the property I would check that the correct paperwork has been done with the states Land Title Office that shows that the SMSF is the owner of the property (& also refer to the purchase contract). As an example in Victoria the lawyer would have advised the State Revenue Office at the time of purchase that the SMSF is the owner of the property (as the SMSF is not referred to in the transfer of land document.
In relation to the different names on the declarations / deeds of trust yes they should be verified and compared to the trustees names on the SMSF trust deed.
In your management letter I would refer to all the issues you have raised and highlight how a corporate trustee would normally be a better option to keep SMSF assets from personal assets.
It would be great to get other members view on this issue as the issues raised are a common issue faced by auditors.
Thanks
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