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I am auditing an SMSF that has a total value of $7.5m. Included in this total is a commercial rental property worth $1.2m (obviously including land and buildings). I asked for a copy of the property insurance policy from the accountant and have received an email saying the proeprty does not have building insurance as it is "extremely expensvie for old premises". What are my obligations here given the asset represents 16% of the total assets of the fund. Many thanks
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Hi Lynda
A similar issue has been raised previously and there will be differing views re this question.
My view is that the auditor is not signing off the compliance audit report in relation to any sections / regulations of SIS that would require a Fund's property to have insurance (& nor is it covered by the financial audit report). On that basis if the Fund's property does not have insurance then this would not be an audit contravention.
I am of the view that the auditor of a SMSF should review if a Fund's property is insured. If there is no insurance in place this should be raised with the Trustee via a management letter. The auditor's review of insurance is complicated in that a Fund may have insurance over a property however the insurance cover may not be adequate.
Previously other forum members have raised concerns re the Sole Purpose Test if no building insurance is in place. They argued how have the trustees provided for the members retirement benefits if the property is damaged and there is no insurance in place. They further argued that Trustees have an obligation to act in the member's best interests and that this should include ensuring that any property is insured.
Thanks
SMSF AAA