The third 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 3: Management Letter
Audit standards require certain matters to be communicated to the trustee during the course of the audit. The Management Letter represents an opportunity to provide a final communication vehicle to comply with these requirements. For example, documenting ASA 260 – significant matters arising during the audit that are relevant to the oversight of the financial reporting process and ASA 265 – communicating significant deficiencies identified in internal controls.
The CaseWare Cloud SMSF Audit Completion Checklist includes references to both ASA 260 and ASA 265, along with a number of other ASA standards, to ensure you have considered and covered off on these requirements during the course of the audit.
The Management Letter may also be used to communicate information regarding compliance breaches that may have occurred or may be about to occur. This may be to expand upon matters qualified in the audit report, or where the auditor has considered the breach immaterial and has not qualified the audit report.
ASAE 3100 allows for non-compliance that is ‘clearly trivial’ not to be communicated to trustees. However, S129 of SISA provides no exception for clearly trivial and this overrides ASAE 3100.
S129 SISA requires the auditor to tell the trustee in writing where a breach of SISA or SISR may have occurred, may be occurring, or may occur, immediately after forming the opinion. The requirement is in relation to the performance of the audit function under SISA and SISR. It can be argued that the audit function only covers those reportable sections within the scope of the audit report. However, we would suggest that if the auditor identifies a suspected breach of sections and regulations that are not reportable these should also be included in the Management Letter. One example would be if the trustee did not appoint an auditor more than 45 days before the return was required to be lodged. This would represent a breach of regulation 8.02A of SISR and 35C(1) of SISA. These are not reportable breaches for the compliance scope of the audit report, but we would inform the trustee in writing in our Management Letter of the breach.
As stated, S129 does not provide any exemption for clearly trivial matters. This has presented new problems since the introduction of regulation 8.02B market value reporting. Previously, clearly trivial misstatements would have been disregarded. Our view of the correct approach now is to inform the accountant of any clearly trivial misstatements in market value and note that in the absence of amended financials we must report the matter in our Management Letter. This has led to far more amended financial statements as accountants prefer trustees not to be informed an error has been made in the accounts. (Misstatements that are more than clearly trivial are dealt with under audit standards. If material, they are either corrected or the audit report is qualified. If immaterial, but more than clearly trivial, they are either corrected or written representation is obtained from the trustee that they agree such misstatements are immaterial).
The Management Letter may also serve as a tool to reduce litigation risk against the auditor. For example, we include standard text in each Management Letter suggesting basic internal controls such as ensuring bank accounts operate on a joint signatory basis and trustees obtain professional advice before making investment decisions.
We may also include specific matters, for example, if a bank audit certificate identifies non-members as account signatories. This would usually be a family member, former trustee or an adviser/investment manager to the fund. We will suggest a review as to whether the signatory remains appropriate.
Another example would be where the fund has unrelated unlisted company investments, where sufficient appropriate audit evidence was hard to come by, or the company is in administration. We may point out the inherent risks of such investments and suggest more express consideration in the Investment Strategy, or for the trustee to obtain professional advice in regard to recovering the investment if in administration.
A final word on Management Letters: The auditor should be extremely careful that any matters raised or suggestions in the Management Letter do not constitute or be construed as financial advice.
How CaseWareCloud SMSF Audit can help
As the management letter varies from firm to firm, and even job to job, CaseWare Cloud SMSF Audit does not include a management letter template. Instead, you have the opportunity to create your own management letter(s) in the firm’s template, which will be automatically included in every audit engagement. Our letter-type document will also allow you to automate information fields, such as fund and members details, and include pre-determined paragraphs and company letterheads.
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