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Jean Rey

Mar 11, 2024

Management Letter

in SMSF Technical Forum

Dear Auditors Institute Members,

I would love to know your opinion about what to advise the trustees of a fund in the audit management letter.

The fund has an investment strategy in place that recognised the need to have a diversified asset mix but with an allocation on strong growth assets focused on maximising capital growth.

The fund invested in three different shares since establishment in 2021 (cost around $450,000 and market value of $80,000 at 30/06/2023).

The fund has only $300 in cash and couldn't pay the $10,000 tax payable from previous year (lodged in May 2023).

The ATO has started to charged about $100 interest per month since July 2023.

I can't identify any breaches.

What would you advise in the Management Letter?

Thank you very much in advance.

2 comments

Comments (2)

Jean Rey

Mar 11, 2024

I was advised by the accountant that the trustees are fully aware of the situation and that the tax payable will be paid personally by the members and recorded as non concessional contributions (2021 tax payable was paid that way too).

Please let me know what you would advise in the Management Letter.

Thank you in advance.

THE AUDITORS INSTITUTE

Mar 11, 2024

Replying to

Hi Jean

The 2 issues that you have raised are diversification in that they have only invested in 3 shares and that liquidity is an issue in that they do not have enough cash to pay the tax liability.

From a management letter perspective, I would just remind the trustees of their responsibilities under SIS regulation 4.09 in respect of investment strategies.

Under SIS regulation 4.09:

"The trustee of the entity must formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following:

(a) the risk involved in making, holding and realising, and the likely return from, the entity's investments, having regard to its objectives and expected cash flow requirements;

(b) the composition of the entity's investments as a whole, including the extent to which they are diverse or involve exposure of the entity to risks from inadequate diversification;

(d) the ability of the entity to discharge its existing and prospective liabilities;

(e) whether the trustees of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund."

Thanks

The Auditors Institute