The approved form requires the auditor to report on compliance with specific provisions of the SIS Act and SIS Regulations. The only reference to the fund’s trust deed includes testing that the fund trust deed establishes the fund solely for the provision of retirement benefits for fund members or their dependants.
Therefore, on this basis, when forming an opinion on the trustee’s compliance with the specific SIS requirements, the auditor simply needs to review the fund’s trust deed to ensure it establishes the fund for the above purpose.
Australian auditing standards (ASA) & Auditing Standards on Assurance Engagements (ASAE)
Unlike the specific SIS provisions however, the ASAs and ASAEs, whilst indirectly, do impose obligations on the auditor regarding the trust deed. The following is an extract of two specific standards:
ASA 260.16(b)
“The auditor shall communicate with those charged with governance:
The auditor’s views about significant qualitative aspects of the entity’s accounting practices, including accounting policies, accounting estimates and financial report disclosures.”
ASAE 3100.68
The assurance practitioner shall make the responsible party aware as soon as practicable, of material deficiencies and/or compliance breaches which have come to the assurance practitioner’s attention.
Therefore, if the auditor identifies any concerns or issues relating to the SMSF trust deed, whilst the issue may not be a contravention, the auditor should consider the need to communicate such concerns to the trustees.
Trust deed issues requiring communication with trustees
Listed below are a number of issues we feel represent material deficiencies or concerns that the auditor should consider communicating to the trustees in a management letter.
- References to superseded legislationOlder trust deeds may reference superseded legislation. Some deeds may either prohibit borrowing or permit borrowing under the superseded section 674A. Other deeds do not provide for the payment an account based pension. We’ve even seen older deeds allowing trustees to be remunerated for acting as a trustee (as opposed to the exemption found in s.17B of the SISA).
- Deeds providing general discretion to the trustees relating to benefit paymentsMany trust deeds include generic provisions permitting the surviving trustee to pay a deceased member’s benefits in accordance with the surviving trustee’s discretion. The risk of such provision is a costly court case to settle disputes between beneficiaries and those that believe they are entitled to the member’s benefit. Such generic provisions may be a concern the auditor should consider in his or her management letter.
- Outdated nominations We recently encountered a non-lapsing death benefit nomination providing that upon the death of the member, the member’s benefits were to be paid to the member’s former spouse (they had separated years earlier). We believe this is a matter that should be communicated to the member and his new spouse.
- Individual trustees vs corporate trusteeWith the recent introduction of the Tax and Superannuation Laws Amendment (2014 Measures No. 1) Bill 2014, effective 1 July 2014, contraventions of certain SIS provisions may see each individual trustee receiving a $10,200 penalty. That is $40,800 for a fund with four individual trustees. However, the auditor should consider reporting in the management letter that in the same situation, directors of a corporate trustee would receive just the one $10,200 penalty for which each director is held jointly and severably liable.
Conclusion
The auditor’s requirement with regard to the trust deed is generally limited to communicating significant deficiencies or issues pertaining to the deed in the management letter. When encountering any of the abovementioned issues, or any other issue not listed above, we would suggest the auditor include his or her concerns in the management letter, suggesting the trustees seek professional advice in relation to the matter as non communication of such concerns could be considered a failure by the auditor to comply with his or her legislative requirement of the Australian auditing standards.
