2017 SMSF Audit Issues. Presented by: Shirley Schaefer, FCA, SSAud BDO Australia

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2 2017 SMSF Audit Issues Presented by: Shirley Schaefer, FCA, SSAud BDO Australia

3 Agenda Audit of Financial Statements 2017 Super Changes Other Audit Issues Auditor Reporting

4 Audit of Financial Statements Valuation Change in Accounting Policies

5 Audit of Financial Statements Reg 8.02B - assets are required to be carried at market value ATO guidance Trustee valuation is permitted based on objective & supportable data

6 Audit of Financial Statements Transfer Balance Cap Trustees want to get pension balances < $1.6m How are valuations conducted? Change in valuation methodology?

7 Audit of Financial Statements Asset valuations What is the audit risk? What is material? Unadjusted Error < 5% of relevant base NOT MATERIAL 5 10% of relevant base AUDITOR DISCRETION > 10% of relevant base MATERIAL - QUALIFICATION

8 Audit of Financial Statements Asset valuations Required by Reg 8.02B If financial statement qualification it will also be a SIS compliance contravention ACR reporting > 5% of assets; or > $30,000

9 Audit of Financial Statements Changes in Accounting Policies Tax Effect Accounting for the first time? Application of CGT relief mechanisms Deferred tax liability for notional CGT Also reduces member balances

10 Audit of Financial Statements Changes in Accounting Policies AASB 108 Retrospective application Disclosure requirements What is disclosed in Note 1?

11 New 2017 Super Rules Contributions Transfer Balance Cap CGT Relief

12 New 2017 Super Rules Contributions No changes that impact 30 June 2017 From 1 July 2017 can no longer refund excess non-concessional contributions Reg 7.04(3) - repealed

13 New 2017 Super Rules Regulation 7.04(3) Refunding excess non-concessional contributions Single contribution must exceed fund capped amount (ie $540,000 or $180,000) MUST be refunded within 30 days Contravention of statutory time limit

14 New 2017 Super Rules Transfer Balance Cap Where pensions > $1.6m Commute & withdraw excess Commute & retain excess in accumulation account Commute in full

15 New 2017 Super Rules Transfer Balance Cap Commutation Documentation Request from member Date of commutation How calculated (after allocation of pensions & earnings) Trustee resolution confirming commutation Dated PRE 30 June 2017 NEED DOCUMENTATION

16 New 2017 Super Rules Transfer Balance Cap calculation of ECPI Can use segregated method if continues to be a segregated fund after commutation If changing from segregated fund to pooled fund Need Actuarial certificate (even if for 1 day)

17 New 2017 Super Rules Capital Gains Tax Relief Trustees elect to reset cost bases Trustee irrevocable resolutions Ensure specific assets are identified NEED DOCUMENTATION

18 New 2017 Super Rules Capital Gains Tax Relief Pooled Super Funds Calculation of notional capital gain Apply 2017 ECPI percentage Include in ITR & pay tax Defer gain until asset sold Trustee irrevocable resolution NEED DOCUMENTATION

19 Other Audit Issues Related Parties Related LRBAs

20 Related Party Investments Related parties SMSF members, spouses & relatives Trusts/Companies controlled by SMSF members, relatives & related parties Control is more than 50% of voting rights or Sufficiently influenced Partners in a partnerships (where the members is a partner)

21 Related Party Investments In House Assets (IHA) Loan to related party Lease to a related party Investment in a related party Maximum 5% of SMSF assets

22 Related Party Investments IHA Audit Issues Non-identification of related parties & in house assets Loans to members* The auditor s ability to verify the application of exceptions to the in house asset rules *ATO has identified that these are often illegal early access schemes

23 Related LRBAs Limited Recourse Borrowing Arrangements used to acquire a single acquirable asset the asset is held on trust for SMSF the trustee has the right to acquire remaining interest in the asset by payment of instalments the lenders right to assets is limited to the asset subject to the loan existing assets of the fund are not used to secure the borrowing

24 Related LRBAs Related Party LRBAs LRBA terms are not arms length LVR is 100% Interest rate is 0% No security is registered No repayments of capital

25 Related LRBAs PCG 2016/5 Related Party Lenders Real Property Listed Securities Interest Rate RBA Indicator Lending Rates (May 2017 = 5.8%) Term of Loan 15 years 7 years + margin of 2% Loan to Value Ratio Maximum 70% Maximum 50%. Security A registered mortgage A registered charge/mortgage or similar security Nature & frequency of repayments Loan Agreement principal and interest monthly A written and executed loan agreement is required. principal and interest monthly A written and executed loan agreement is required

26 Related LRBAs 2017 Audit Issues Auditor assessment that the LRBA is arms length where it does not meet PCG 2016/5 Related impact on financial statements is the income taxable as NALI?

27 Audit Reporting 2017 SMSF Audit Report Auditor Contravention Reports Voluntary Reporting

28 Auditor Reporting New Audit Report relocation of the auditor s opinion to the beginning of the auditor s report an explicit statement of independence and fulfilment of relevant ethical responsibilities separate section in the auditor s report when a material uncertainty relating to going concern exists and is adequately disclosed

29 Auditor Reporting New Audit Report separate section in the auditor s report for work done on the other information included in the annual report focusing the auditor s attention on the financial statement disclosures consequential amendments to other auditing standards

30 Auditor Reporting Reporting to Trustees ASA 260 Communication with Those Charged with Governance ASA 265 Communicating Deficiencies in Internal Control to those Charged with Governance and Management SISA section 129 ALL contraventions identified

31 Auditor Reporting Reporting to ATO SISA section 129 & 130 Auditor contravention report specific guidance Is the financial position of the fund unsatisfactory?

32 Auditor Reporting - ACR s.17a Definition of SMSF New Fund (15 mths) Breaches > $2,000 Repeated Breaches Unrectified Breaches

33 Auditor Reporting - ACR Statutory Time Periods > 14 days Aggregate Value > 5% Aggregate Value > $30,000

34 Auditor Reporting Voluntary Contravention Reporting Allows trustees to report early Allows trustees to agree rectification early Audit STILL required to report

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