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Verifying ownership and asset separation during SMSF audit
The ATO has reminded SMSF auditors that they must gather sufficient evidence to verify ownership and asset separation.
The regulator says that when conducting the annual SMSF audit, auditors must gather sufficient evidence to confirm that the fund owns its reported assets (Part A of the SMSF Independent Auditor's Report) and that trustees comply with the asset separation rules (Part B of the SMSF Independent Auditor's Report).
Regulation 4.09A requires trustees to keep fund assets and money separate from their personal assets, as well as from those held by any standard employer sponsor or their associates. This rule protects fund assets in case of creditor disputes.
To help auditors meet their obligations, the ATO has published new guidance outlining the types of evidence that can be used to verify asset ownership and comply with regulation 4.09A.
If an auditor cannot confirm the fund owns an asset listed in its financial statements – and the asset is material – they must modify their opinion in Part A of the SMSF Independent Auditor's Report.
Failing to maintain separation of assets results in a contravention of regulation 4.09A. If the contravention is material, the auditor must modify their opinion in Part B of the SMSF Independent Auditor's Report.
If the reporting criteria are met, the auditor must also report a regulation 4.09A contravention in an auditor/actuary contravention report (ACR). This may occur when a company acts as both the SMSF trustee and a business operator and uses the same bank account for both SMSF and business income.
The Tax Office encouraged auditors to review the new guidance. It includes practical examples and outlines the acceptable forms of evidence to support compliance with both asset ownership and separation requirements.
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