Dear Sir/Madam,

as Section 8.5.3 state ...."the auditor must exercise professional judgement and apply the reasonable and informed third party test to determine if any threats to independence exist."

Do you know where/ who the auditor can apply the test to determine dependence exist?

I will not do audit this fund, I ask for understand

Many thanks

Thanks a lot for your help

Hi Phuong

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".

If the minute covers what is required in relation to an appropriate investment strategy then this would meet the requirements and arguably a separate investment strategy would not be required. The ATO provides guidance on what trustees need to be 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 percentages the ATO states:

"If you choose not to use allocated portions or percentages in your investment strategy, you should ensure material assets are listed in your investment strategy. You should also include the reasons why investing in those assets will achieve your retirement goals."

In relation to the independence query my view is that preferably you would not do the audit as you advised in relation to the establishment of the Fund and this is arguably a threat to independence. As it has been more than 2 years since you were involved in the set up of the Fund then you may argue that this threat no longer exists.

There is an independence guide that can be found at:

https://apesb.org.au/uploads/home/27052020043807_APESB_Independence_Guide_May_2020.pdf

Chapter 8 deals with SMSF audits and example 8.5.3. gives guidance.

It states:

"If the time period from when an auditor was a partner of a firm exceeds 2 years, it will generally not be considered to create threats to independence. However, this is dependent on the particular facts and circumstances of the situation and the auditor must exercise professional judgement and apply the reasonable and informed third party test to determine if any threats to independence exist."

If other members have a view re the independence query please let the forum know.

Thanks

SMSF AAA