Self-managed superannuation funds (SMSFs) that include instalment warrants present a very real risk for auditors, according to Super Sphere director and audit specialist Belinda Aisbett.
"Do mums and dads really understand what they are investing in and do they really understand the risks they are signing up for?" Aisbett asked attendees at the Self-Managed Super Fund Professionals' Association of Australia (SPAA) national conference in Melbourne on Friday.
"And if they don't understand the risks and it all goes horribly pear-shaped, who do they turn around and blame? I imagine that the average auditor in the room knows well and truly that the blame is going to, rightly or wrongly, stick in our direction," she said.
In order to mitigate the risk instalment warrants pose for auditors, Aisbett suggested a number of essential factors to be covered off in regard to these financial instruments.
"Where the client has an instalment warrant the auditor really must ensure the asset is permitted," she said.
Other areas that needed to be addressed included making sure the asset is held in a bare trust, ensuring the SMSF has sufficient cash flow to pay for the deposit on the property and the stamp duty, ensuring the fund has the legal right to acquire the asset, and making sure the lender has limited recourse.
Aisbett recommended auditors check the SMSF trust deed to make sure it allows the use of borrowing, check the investment strategy to ensure the investment structure is permitted, check to see if the right accounting entries have been recorded to recognise the debt, and request a representation letter from the proposing solicitors.
Furthermore, the halving of the contribution caps handed down in last year's budget have added an additional problem for auditors to deal with.
