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Using trustee declarations as audit evidence

By Vivian Bai
June 21 2016
4 minute read
Using trustee declarations as audit evidence
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Trustee declarations alone will not necessarily provide sufficient audit evidence – an auditor must also assess whether there is a need to modify the audit opinion.

Trustee declarations are important written communications between trustees and auditors. They are required when other appropriate audit evidence cannot reasonably be expected to exist or when the other audit evidence obtained is of lower quality.

Trustee declarations have similar powers as audit evidence as trustee representations. In practice, trustee representation is commonly used in the form of a trustee representation letter, which is a comprehensive document covering common items conducted in an audit engagement. A trustee representation letter is an essential document required for every audit under ASA 580 and ASAE 3100. When SMSF auditors sign off on SIS sections s35AE, s35B, s103, s104, s104A, and s105, they often rely solely on the trustee representation letter.


Trustee declarations are used in circumstances where the inability to obtain appropriate evidence regarding a matter has a material effect on the audit. Trustee declarations, therefore, are to address a specific matter encountered during a particular audit. Guidance Statement GS 009 does not mention trustee declarations at all, except in the context of ATO trustee declarations and statutory declarations. In the language of GS 009, a trustee declaration document we use in practice is also a form of written trustee representation, and is audit evidence acquired by enquiry as an audit procedure.

Paragraph 89 of GS 009 states: "Enquiry is an audit procedure that is used extensively throughout the audit and often is complementary to performing other audit procedures."

This article will examine trustee declarations as the term is used in practice, ie, trustee declaration as a result of audit enquiry for a specific fund situation not covered by the common trustee representation letter; although technically trustee declaration is a form of trustee representation as well. Trustee declarations or sometimes declarations in their capacity as members can be used in work tests, when collectables are held privately, when gold and silver bullion is in the safe of a trustee’s house, or when an invoice is missing. After considering risks and materiality, most of the time trustee declarations can be used as a good source of audit evidence.

However, when the effects of misstatements are greatly above materiality level, or the risk of non-compliance with the specified requirements of the SISA and SISR is very high, using trustee declarations as audit evidence can be tricky. In these situations, how much can we rely on trustee declarations as an auditor? What if they are not true?

I had an enquiry from an accountant regarding overseas travel expenses reimbursement requested by the trustees for inspecting a property, which they will potentially purchase for their SMSF. The trustees went to the US for more than a week, stayed in a five-star hotel, and kept a travel diary documenting where they had been and with whom they had met with. To make the matter a bit complicated, the property was not purchased at the time of the enquiry. They wanted to be fully reimbursed on travel and accommodation expenses, which was a substantial amount of money given the size of the fund. And they declared the whole trip was for the SMSF property purchase, and nothing else.

Both the accountant and I were reluctant to believe the legitimacy of their claim, but at the same time, we didn’t have evidence to the contrary. Technically the trustees can be right with their claim; they could honestly spend all their time doing nothing but property inspection. If they didn’t end up purchasing the property, it’s a bad investment decision rather than an audit issue. We couldn’t go back to the trustees and say we don’t believe you, because there is a detailed travel diary, but I certainly didn’t feel right issuing an unqualified audit report.

Then I realised that I simply didn’t have enough audit evidence to tell if the trustees’ declaration was true, or if their understanding of the legislation was accurate. I didn’t know if they went to Disneyland or not, and there was no way I would know. Unless I were there on the trip with them, I would not know if there were personal elements involved and how much. And in this case, even though there is a detailed travel diary and a declaration, there is still insufficient appropriate audit evidence to form an audit opinion. Trustee declaration itself is not sufficient audit evidence. GS 009 confirms that enquiry alone ordinarily does not provide sufficient audit evidence to detect a material mis-statement.

Another extreme example is when a fund has all its investment in gold and silver bullion and is keeping them in a safe sealed in a concrete wall. Here again, trustee declaration is not sufficient audit evidence.

In both cases I would qualify the audit report in both section A and section B simply because there is no sufficient audit evidence to form an appropriate audit opinion. I would not lodge an ACR because I have no sufficient evidence that there is a breach either.

In another example, an auditor had a fund with a $100,000 portfolio where the trustee spent $20,000 on a Forex course. The trustee declared these expenses were purely incurred for the fund. Is that just a bad decision for the fund? Or should the course fee be proportioned? According to the auditor, this fund was actually audited by the ATO, and the ATO said it was excessive and considered early access, as there was no need for the trustees to obtain all the necessary investment knowledge themselves and that with education there is always a personal element.

In the case of a trustee’s declaration of permanent retirement under 60 years of age GS 009 states that the retirement is evidenced by a statutory declaration or similar document. This is the only place where statutory declaration is mentioned in GS 009. In my opinion, statutory declarations are much better-quality audit evidence and can be requested by auditors on other enquires as well.

To conclude, trustee declarations alone as a result of audit enquiry do not necessarily provide sufficient audit evidence. An auditor needs to evaluate the trustee declarations to assess whether there is a need to modify or qualify the audit opinion.

Vivian Bai, principal, Access Super Audit