The first in a series of six blogs, authored by our CaseWare Cloud SMSF Audit product content provider Sharlene Anderson and the Veritas Corp team. Sharlene focusses 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 1: Engagement Letter
The Engagement Letter is the agreement between the auditor and the client setting out (amongst other things) the scope of the audit and each parties’ roles and responsibilities.
Contents of the Engagement Letter are driven by ASA 210 Agreeing the Terms of Audit Engagements and ASAE 3100 Compliance Engagements. Compliance with these standards should also result in compliance with APES 305 Terms of Engagement. The Engagement Letter is also a convenient method of communicating with those charged with governance (the fund trustee) which pertain to certain requirements of ASA 260 Communication With Those Charged With Governance.
Top Tip: Quality SMSF Audit Engagement Letters should include (at a minimum):
- The objective and scope of the audit of the financial report (ASA 210)
- The responsibilities of the auditor (ASA 210) including:
- Responsibility for forming and expressing an opinion on the financial report (ASA 260).
- Objective of obtaining reasonable assurance about whether the financial report as a whole is free from material misstatement whether due to fraud or error (ASA 200).
- Planned scope and timing of the audit which includes communicating about the significant risks identified by the auditor (ASA 260).
- That the auditor complies with relevant ethical and independence requirements and conduct the audit in accordance with relevant standards (ASA 200).
- The responsibilities of the trustees, including agreement that the trustees acknowledge and understands their responsibility for (ASA 210):
- The preparation of the financial report in accordance with the applicable framework including where relevant fair presentation.
- For such internal controls as the trustee determines is necessary to enable the preparation of the financial report that is free from material misstatement whether due to fraud or error (ASA 240).
- Providing access to all information that is relevant to the preparation of the financial report.
- Providing additional information that the auditor may request for the purpose of the audit.
- Providing unrestricted access to persons within the SMSF.
- Auditor expectation that trustees will provide access to information relevant to disclosures.
- Identification of the applicable financial reporting framework for the preparation of the financial report (ASA 210).
- Reference to the expected form and content of the audit report and a statement that there may be circumstances in which a report may differ from its expected form and content (ASA 210).
- The scope of the compliance Engagement (ASAE 3100), this should be the reportable criteria as prescribed by the ATO audit report relevant for the year of audit.
- That the compliance audit is a reasonable assurance direct engagement (ASAE 3100).
- The intended users of the assurance report (ASAE 3100).
- The content of the assurance report including a statement the report will be a short-form report (ASAE 3100) NB: in contrast, a long form report has additional reporting information including procedures conducted and detailed findings and recommendations to meet the needs of the intended users.
- Auditor responsibility for forming and expressing an opinion on SISA / SISR compliance (ASAE 3100).
- Objective: to obtain reasonable assurance about whether the trustee has complied in all material respects with relevant SISA /SISR (ASAE 3100) requirements.
- Trustee responsibility to identify compliance requirements specified by law (ATO prescribed audit report).
- Trustee responsibility to provide, in relation to compliance engagement, access to all relevant records, additional information requested by the auditor and unrestricted access to persons.
- A statement advising the client that the auditor is a participant in a scheme under Professional Standards Legislation and liability may be limited under the scheme (if applicable) (APES 305).
- Fees and billing arrangements (APES 305).
- Reference to confidentiality requirements and the impact of them on the quality review program of the relevant professional body (APES 305).
- Trustee consent for the auditor to communicate with any previous auditor of the SMSF (APES 110).
- May also wish to include the expectation that the trustees will provide any requested written representations.
An Engagement Letter template is included in SMSF Audit which addresses all ASA and ASAE points above. Letters can be tailored specifically for your firm to include the other APES points and other firm-specific customisations, including headers and footers.