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Our new client SMSF was established in FY 2004, We are now auditing FY 2020 and FY 2021 and the client/accountant/auditor cannot provide the ownership of the SMSF overseas assets within 14 days, due to the following:
1. According to client the previous auditor and accountant which have all the files are both very ill and no longer contactable. All previous audit reports are Unqualified.
2. It will take awhile to obtain a new copy since the concerned assets are all located overseas and because of COVID it will cause massive delays.
3. Client has given all the files to the accountant/auditor so the trustee did not maintain copy.
Additional information - the SMSF overseas real estate is 70% of the total assets of the Fund.
The client is willing to execute a Statutory Declaration that the trustee will provide all required documents once received. Will the statutory Declaration sufficient? Can we rely on previous auditors report as the assets have been cleared by previous auditor? or we really need the contract of sale/title.
I will appreciate comments on this on how to finalise the audit. Thanks
Hi Maria
My view is that the statutory declaration cannot me relied upon to verify the existence / ownership of a property. Further you cannot rely on a previous audit report to support the existence / ownership of a property.
Auditing overseas property held by a SMSF can be difficult. I also understand that obtaining a title search in certain overseas countries can be very difficult.
As a starting point (if not able to do a title search) my view is that you would issue a Part A financial qualification that you have not been able to verify the existence of the property. The tax agent would disclose the qualification in the annual return.
In relation to the compliance audit the auditor needs to consider:
Reg 8.02B - an asset must be valued at its market value.
Reg 4.09A - assets of the SMSF must be held separately from any assets held by the trustee personally.
You could also argue that if you cannot get a current title search you cannot verify if there is a charge over the asset (Reg 13.14).
I have not had experience in auditing foreign property so it would be great to get member's views as to how they would approach the audit.
My view is I would also issue a compliance qualification if you are not able to get satisfactory evidence to support its existence, its valuation & whether there is a charge over the asset and refer to the regulations noted above.
You may also need to qualify re Section 35C(2) of SIS that requires:
"The trustees must provide the auditor with the necessary documents to complete the audit in a timely and professional manner; and within 14 days of a written request from the auditor'.
Thanks
SMSF AAA