Hi Ronald

In relation to the investment strategy the auditor signs off on regulation 4.09 of SIS that requires:

"Trustees must formulate, regularly review and give effect to an investment strategy for the fund".

Part B of the audit report also states that:

"My procedures with respect to regulation 4.09 included testing 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."

The ATO provides guidance on what trustees need to include in their investment strategy and they state:

"Your SMSF investment strategy should be in writing. It should also be tailored and specific to the relevant circumstances of your fund rather than a document which just repeats the words in the legislation.

Relevant circumstances may include (but are not limited to) personal circumstances of the members such as their age, employment status, and retirement needs, which influence your risk appetite. Your strategy should explain how your investments meet each member’s retirement objectives.

In particular, under the super laws your strategy must consider the following specific factors in regard to the whole circumstances of your fund:

· risks involved in making, holding and realising, and the likely return from your fund’s investments regarding its objectives and cash flow requirements

· composition of your fund’s investments including the extent to which they are diverse (such as investing in a range of assets and asset classes) and the risks of inadequate diversification

· liquidity of the fund’s assets (how easily they can be converted to cash to meet fund expenses such as the cost of managing the fund and income tax expenses)

· fund’s ability to pay benefits (such as when members retire and require a lump sum payment or regular pension payments) and other costs it incurs

· whether to hold insurance cover (such as life, permanent or temporary incapacity insurance) for each member of your SMSF."

In relation to ranges in an investment strategy the ATO advises that:

"When formulating your investment strategy, it is not a valid approach to merely specify investment ranges of 0 to 100% for each class of investment. You also need to articulate:

• how you plan to invest your super, or

• why you require broad ranges to achieve your investment strategy requirements."

The ATO also advises that:

"If your strategy isn't compliant

If your auditor identifies that you have breached the investment strategy requirements, then you should fix the breach.

If your strategy failed to adequately address some of the factors mentioned above, such as the risk of inadequate diversification, fix this by attaching a:

• signed and dated addendum to the strategy

• trustee minute which adequately addresses the requirements.

Show this to your auditor before the audit is finalised."

My view is that if you can get the trustees to rectify the investment strategy (i.e. fix the breach), re the ranges being recorded incorrectly as 0% to 100%, in accordance with the ATO recommendation noted above then normally there would not be a need to lodge an ACR.

If other auditors have a view please let the forum know.

Thanks

SMSF AAA