The final in a series of six blogs, authored by our CaseWare Cloud SMSF Audit product content provider Sharlene Anderson and the Veritas Corp team. Sharlene focuses on a key SMSF Audit process for each of these blogs and recommends what to include in your documentation to ensure you complete and gather adequate evidence for a high quality, compliant audit.
SMSF audits are conducted in accordance with Australian auditing standards and standards on assurance engagements. The documentation requirements of the standards are exhaustive. It is vitally important that each audit file can stand alone and support both compliance with the standards and the audit opinions. If a procedure or test is not documented, the auditor has no evidence that it was performed. If an audit file should be called into question, and this can happen at professional body Q & A review as well as litigation by clients, the auditor with a well-documented, compliant audit file will have much firmer ground to stand upon.
Disclaimer This paper represents the opinion of the author(s). The contents are for general information only. They are not intended as professional advice – for that you should consult a suitably qualified professional. Veritas Corp expressly disclaims all liability for any loss or damage arising from reliance upon any information in this paper.
Part 6: Auditor’s Responsibility to Obtain Written Representation from Trustee
The trustee representation letter is a vital component of the audit file. It contains the written representations required by the audit and assurance standards. For certain compliance criteria it may represent the significant source of compliance evidence. For example, signed confirmation from the trustees/directors that they are not disqualified persons under section 126K SISA. Whilst auditors will be alert during the course of the audit to indications of bankruptcy and other matters that would cause disqualification, SMSF auditors will not usually conduct police history checks or bankruptcy searches.
Within CaseWare Cloud SMSF Audit a generic Trustee Representation Letter SMSF Audit is provided, which can be added to if required.
The date of the written representation shall be as near as practicable to, but not after, the date of the assurance report. Generally, the auditor carries risks in relation to subsequent events between the date of the representation letter and the date of the audit report.
Written representations are audit evidence. However, on their own, they do not provide sufficient appropriate audit evidence about any of the matters with which they deal (ASA 580). The representation letter shall be addressed to the auditor. GS009 provides a good starting point for a Trustee Representation Letter.
Section 35B of SISA allows a Trustee Declaration accompanying the financial statements in a fund with more than two trustees/directors to be signed by just two. For the representation letter, we insist upon the document being signed by all trustees/directors. Sign off by saying two of four may be enough to cover representations for the likes of subsequent events and fund residency but for us (Veritas Corp), it does not evidence the disqualification status of all. Sections 52B and 52C of SISA also make each trustee / director responsible for the covenants in section 52B.
ASA 580 Written Representations provides that if there is doubt about the integrity, competence, ethical values or diligence of the trustees the auditor shall determine the effect on the reliability of representations. If representations are inconsistent with other audit evidence the auditor shall perform procedures to resolve the inconsistency.
If the auditor concludes written representations are not reliable, appropriate action should be taken including determining the possible effect on the opinion in the audit report.
If written representations are not provided, again integrity must be questioned and the possible effect on the opinion in the audit report considered.
The auditor must disclaim an opinion on the financial report if there is sufficient doubt about the integrity of the trustees such that written representations are not reliable or the trustees do not provide written representations required by ASA 580.
Written representations required by audit Standards are listed below:
- Acknowledgement of responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud.
- That assessment of the risk the financial report may be materially misstated due to fraud has been disclosed.
- That knowledge of fraud or suspected fraud involving trustees or others where the fraud could have a material effect on the financial report has been disclosed.
- That knowledge of any allegations of fraud or suspected fraud affecting the financial report has been disclosed.
- That all known instances of non-compliance or suspected non-compliance with laws and regulations whose effects should be considered when preparing the financial report have been disclosed
- Whether trustees believe the effects of uncorrected misstatements are immaterial, individually and in aggregate. A summary of such misstatements shall be included or attached to the written representation
- Whether trustees believe significant assumptions used in making accounting estimates are reasonable.
- That all known actual or possible litigation and claims whose effects should be considered in the financial report have been disclosed to the auditor and accounted for.
- That the identity of related parties and all related party relationships and transactions have been disclosed.
- That related party transactions have been appropriately accounted for and disclosed.
- That all events occurring subsequent to the date of the financial report and for which the financial reporting framework requires adjustment or disclosure have been adjusted or disclosed.
- Confirmation of trustee assessment of fund to continue as a going concern (although written representation is only required in relation to plans for future actions when there is a significant doubt regarding going concern status, the representation letter provides an opportunity to document the trustee assessment of the going concern basis).
- That the trustees have fulfilled their responsibility for the preparation of the financial report in accordance with the applicable financial reporting framework as set out in the terms of engagement.
- That the auditor has been provided with all relevant information and access as agreed in the terms of the audit engagement.
- All transactions have been recorded and are reflected in the financial report.
ASAE 3100 places a requirement to obtain written representations in addition to those required by ASAE 3000. ASAE 3000 requires a representation that all information has been provided and that all relevant matters are reflected in the subject matter information (that is, all relevant matters are reflected in the SMSF financials).
The additional written representation required by ASAE 3100 include:
- Acknowledgement of responsibility for compliance including identification of risks (including fraud) and the design, implementation, and maintenance of internal controls
- Has provided all relevant information and access as agreed in the engagement terms.
- Has disclosed known instances of non-compliance and any subsequent events up to the date of the assurance report that could have a significant effect on the assurance practitioner’s conclusion.
In addition to mandatory standards requirements which include a general statement that there was no non-compliance with relevant SISA / SISR, the letter should contain an express reference to particular compliance issues where the auditor is relying on the letter as a significant part of audit evidence. Such matters would include:
- Residency status of the fund
- Sole purpose test compliance
- Disqualification status of trustees/directors
- Compliance with governing rules of the fund
- Review of Investment Strategy
- Retention of document obligations including financial reports, minutes, changes in a trustee, trustee consent to act, member beneficiary reports and ATO trustee declaration.
In addition to perhaps a generic representation letter, it may also be appropriate to obtain written representation from trustees in relation to compliance matters specific to an SMSF. For example, a written representation that related parties have not had use of or tenanted fund residential properties, or a written representation that other unitholders in a closely held unit trust and trustees/ directors of that trust are not related parties of the fund members.
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