Naturally, when you hear the word ‘audit’ your first reaction is likely to turn around and run the other way – fast – not because you have anything to hide, of course, but let’s be honest; being audited doesn’t sound like the most fun way to spend a day.
The annual audit of your self-managed super fund (SMSF) is very different though. It’s not like being audited by the Australian Tax Office (ATO), and in fact, it has many benefits to you as a trustee.
Wise investment
A good quality audit can be one of the smartest investments your SMSF ever makes. This is because your auditor is your safety net and can deliver some significant savings by:
- Checking the allocation of contributions before they are reported to the ATO so you don’t cop an unexpected extra tax bill.
- Revaluing your super fund’s investments so you know exactly what your super is worth.
- Identifying investments held in wrong names that are at risk to creditors and others.
- Finding mortgages over assets that shouldn’t be there!
- Ensuring your investments are performing in line with your investment strategy.
- Maximising the tax effectiveness of your superannuation balances.
- Reviewing legal documents to ensure they have been properly prepared and your rights are protected.
- Giving you comfort in your advisors and yourself as a trustee.
These are my secrets for how to have a positive audit experience each year.
Your auditor works for you
It’s very important to understand that your auditor works for you, not against you.
Your auditor is engaged by you to provide an opinion on how your fund has fared over the past 12 months. What you should get is an independent report card as to whether your fund is complying with the rules, and comfort that your accountant has prepared the financial statements and annual return correctly for you.
Understanding that a good quality independent auditor has your best interests at heart is the first step to a positive audit experience.
Be proactive
Most auditors have pre-audit checklists that set out the types of records they will need to audit your SMSF each year. Ask for a copy!
If you know what sort of paperwork your auditor needs up front, you can be proactive about keeping good records. This will save you so much time and effort when audit time rolls around.
There’s nothing worse than being told the auditor needs something and you threw it out because no one ever told you to keep it.
As a heads up, any transactions between an SMSF and its members (or related parties) will always attract more attention from the auditor, so pay extra special attention to documenting these transactions.
Prevention is better than the cure
Building a relationship with your auditor that enables you to ‘ask before you act’ is vital. Before you proceed with a significant transaction, you should feel free to talk to your auditor about it. A good auditor can really help you avoid problems before they happen.
Consider asking your auditor questions such as:
- What are the key rules I need to consider, both in setting up the investment arrangement initially and in the ongoing maintenance of the investment?
- What could go wrong?
- What sort of documents should I keep?
- What common mistakes should I avoid?
Be up front
The majority of breaches are caused by genuine mistakes. We’re all human; it’s OK to make mistakes!
Don’t try to be clever trying to cover these things up. The more open and honest you are, the easier it is for your auditor to give you the most accurate opinion and recommend a solution.
Your best asset when things go wrong
If your auditor finds issues, ask them what they recommend you do to fix it. If you have an experienced auditor they will have seen just about everything, so let them help you make it right again.
It surprises me how often I come across trustees who don’t even know who their auditor is, what their qualification is, or what relationship the auditor has with their advisor or accountant.
You should never under-value the relationship between you and your auditor. Quite often they can be your greatest asset.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Also in the Switzer Super Report
- Peter Switzer: Why I’m not running from a Greek default [1]
- JP Goldman: An ETF that taps the growth in mining services [2]
- Andrew Bloore: It all depends on the dependants [3]
- Charlie Aitken: A stock that is one of the ‘haves’ [4]