SMSF Audit Prep: The Documents Accountants Often Miss

For accountants, preparing an SMSF for its annual audit often means pulling together a significant amount of documentation. While many of the key records are routinely provided, there are some documents that are often overlooked, particularly where a fund has more complex investments, related party arrangements or changes during the year.

Missing documentation can lead to unnecessary delays in completing the audit, which is why we encourage our clients to send all documentation upfront to ensure a fast turnaround time. 

Based on what we commonly see during the audit process, here are some of the documents that are often missed. 

1. Leases covering the full audit period

Where an SMSF owns property, we need to see the relevant lease documentation covering the period being audited.

It's important to check that the lease provided actually covers the full audit period. If a lease has expired but the tenant has continued to occupy the property on a month-to-month basis, documentation confirming this arrangement should also be provided. This could be as simple as a letter from the SMSF to the tenant confirming that the lease has rolled over to a month-to-month arrangement.

2. Evidence supporting wrap account and financial planner reports

Where an SMSF uses a wrap account or relies on reports prepared by a financial planner, we may require the relevant audit report covering the controls of those reports. 

Providing the appropriate supporting documentation upfront helps us verify the information being relied upon as part of the audit and can avoid the need for additional follow-up. 

3. Market evidence for related party leases

Related party transactions require particular attention, and property leases between an SMSF and a related party are no exception. Where an SMSF has a related party lease, we may need evidence demonstrating that the rent being charged is consistent with market value.

This could include a real estate letter supporting the rental amount. Providing this evidence with the audit documentation helps demonstrate how the rent was determined and supports the terms of the arrangement.

4. Evidence supporting the value of unlisted investments

Unlisted investments can require more supporting evidence than simply providing a balance sheet figure.

Where an SMSF holds an unlisted investment, we may require audited financial statements and evidence supporting the investment's market value.

If there is limited independent evidence available, a calculation prepared by the trustee or accountant using the investment's financial statements may assist in supporting the valuation.

The key is to consider how the value has been determined and what evidence is available to support it before the fund reaches the audit stage.

5. LRBA loan agreement and bare trust deed

Where an SMSF has entered into a limited recourse borrowing arrangement (LRBA), the loan documentation and bare trust deed are important pieces of supporting evidence.

Please ensure we have access to the relevant loan agreement and bare trust deed for the arrangement. Providing these documents upfront allows us to assess the structure and relevant documentation without having to request them separately.

6. Prior-year financial statements and audit report

If we are completing an SMSF's audit for the first time, it is helpful to receive the prior year's signed financial statements and audit report.

This gives us important context about the fund's previous year and assists with understanding opening balances, investments and other aspects of the fund's position. It can also help avoid unnecessary follow-up where information from the previous year is needed as part of the current audit.

7. A new signed investment strategy where circumstances have changed

A significant change in a fund's investments or the commencement of pensions during the year may mean the fund's investment strategy needs to be reviewed.Where the investment strategy has been updated, please ensure we receive the new signed investment strategy.

This is particularly important where there has been a material change in the fund's circumstances, as we need to consider the fund's investment strategy in the context of its actual investments and activities during the year.

Make audit preparation easier

Every SMSF is different, so the documentation required will depend on the fund's circumstances and the transactions undertaken during the year.

However, taking a few extra minutes to check for commonly missed documents before submitting a fund for audit can save time for both accountants and auditors.

A useful final check is to consider whether anything has changed during the year — such as a new investment, a related party transaction, a property lease, an LRBA, a new pension or a change of auditor — and whether the documentation supporting that change has been provided.

The more complete the audit file is at the outset, the less likely it is that the audit will be held up by requests for additional information.