SMSF Audit Report 2020 - COVID-19 considerations

The COVID-19 pandemic has affected everyone’s lives, and Self Managed Superannuation Fund ("SMSF") trustees are no exception. Super Fund trustees will have some difficult questions to ponder as they focus on how best to position their SMSF in 2020-21 financial year, as well as meet their annual regulatory obligations for 2019-20 year end.

The ATO have recently made announcements with regard to the year ended 30 June 2020 SMSF audit report in relation to COVID-19. The ATO have advised that in some circumstances auditors do not need to modify 'Part B' which is the compliance section of the audit opinion for material contraventions, if the contravention relates to specific COVID-19 relief. However, the ATO are still expecting the auditor to advise the trustees of these contraventions in line with section 129 of the SIS Act, via a trustee management letter.

At EDM Super we have updated audit work programs to address these situations during the 2020 year end audits.

The ATO's addendum to the Auditor Contravention Report ("ACR") instructions covers the following five areas of relief.

- providing rental relief

- loan repayment relief

- in-house asset relief

- market valuations

- early release of super of compassionate grounds due to COVID-19

For example: where rental relief offered by the trustee is commensurate with rental relief being offered by landlords to unrelated tenants in similar circumstances, a reportable section 109 contravention will not arise.

In general to determine if a material reportable contravention has occured, SMSF auditors will be required to review the commerciality of the arrangement, and may do so in light of the National Cabinet Mandatory Code of Conduct.

Auditors will also be looking to check that appropriate documentation has been put in place for example the trustees would be required to provide evidence to support the rental relief arrangement. In particular, it would be important that the parties to any changed lease agreement have written documentation of the changes and the reasons for the change. This could be in the form of a minute or letter signed by both parties or a more formal agreement signed by both parties, attached as an addendum to the lease.

For more information please contact our principal Lana Edmonds directly by either email lana@edmsuper.com.au for a confidential conversation.