Chartered Accountants Superannuation Bulletin Edition 20/08

Welcome to this edition of the Chartered Accountants Superannuation Bulletin.

Issue No 20 /2008 3 November 2008 1. ATO updates 2. News and media releases 3. Impact of fund freeze on audit reports 4. Self-managed super fund annual return 5. Media opportunity 6. Training and development

17 October 2008

Super Update 2008

This edition includes information about members exceeding the contributions cap, a new outcome of the lodgment report error manual, death benefit nominations, a new draft ruling on borrowing money, lost member statement paper forms and verifying compliance with unclaimed super money.

29 October 2008

ATO offers new tax file numbers to super funds

The Tax Office has written to 3122 trustees of self managed super funds offering them a new tax file number (TFN) for their funds.

Guarantee of wholesale funding and deposits

In order to support confidence in funding markets and continued lending by ADIs to Australian corporations, businesses and households, the government will offer a guarantee on debt securities issued by Australian owned banks, locally incorporated subsidiaries of foreign banks, credit unions and building societies for a period of up to three years.

APRA releases research results on superannuation fund performance

APRA recently released the results of a study comparing the performance of large APRA regulated superannuation funds over a five year period (1 July 2001 to 30 June 2006).

The study was conducted on a sample of 90 corporate, industry, public sector and retail superannuation funds, which each had more than $200 million in assets at 30 June 2005.

The primary purpose of the study was to understand the reasons why there are differences in the net returns across superannuation funds.

Question
A number of my clients have invested in funds such as those held by Colonial First State, which have now been frozen. Does this have an impact on the financial report and my audit report for 30 June 2008?

Answer
This is an event that should be disclosed as an event after balance date. In extreme cases freezing of investments may result in the entity being unable to continue as a going concern, in which case the financial report can no longer be prepared on a going concern basis.

For most entities that will be able to continue as a going concern, the freezing of the investments must be disclosed as an event after balance date in accordance with AASB 110 Events After the Balance Sheet Date. This standard classifies events occurring after balance date into two types - adjustable and non adjustable.

Adjustable events are those that provide evidence of conditions that existed at the reporting date, and so the standard requires that their effect is to be recognised in the financial statements by adjusting the relevant items in the financial records (paragraph 8). Non-adjusting events are those that are indicative of conditions that arose after balance date and therefore are not to be adjusted, but may be required to be disclosed (see paragraphs 10 and 21).

Therefore the freezing of the investment, if material, does require disclosure (under paragraph 21) which sets out the nature of the event and an estimate of the financial effect involved. Provided this information is disclosed in the financial report there would not normally be an impact on the audit report as outlined in ASA 560 Subsequent Events.

In extreme cases the freezing of investments may impact on the ability of the entity to continue operating. In this case AASB 110 paragraph 14 states the financial report shall not be prepared on a going concern basis, as the impact of the after balance date event is so pervasive that there needs to be a fundamental change in the basis of accounting. Auditors should have regard to ASA 570 Going Concern in this case.

The auditors of SMSFs with investments in these assets will need to consider the impact on liquidity and defined benefit pensions.

Liquidity
The inability to realise assets to meet minimum pension payments may lead to a breach of the payment standards. Trustees should consider commuting pensions and reverting the fund to accumulation phase. Care should be taken to ensure:

• the minimum pension for the period up to the commutation date has been paid
• transition to retirement pensions are not commuted prior to a condition of release.

Defined benefit pensions
The impairment of assets may lead to a fund being technically insolvent i.e. they are unable to get an actuary to sign a certificate that there is a 70 per cent probability that the fund is able to pay the pension for the members life expectancy. Where this occurs the auditor has a mandatory ATO reporting obligation.

The following explanation refers to Section A Question 6 of the SMSF annual return.

The fund auditor details include two questions, the first is the date the audit was completed and the second asks when the audit was qualified.

The audit of a SMSF must be completed prior to the lodgement of the annual return. This is a requirement of SIS Section 35D and SIS Regulation 8.03. This is not a new requirement, the main change is that the ATO now edits the field to ensure that a positive response is provided. A negative or blank response will result in an inability to lodge the return. Responding in the affirmative when the audit is not complete can result in a penalty for a false of misleading statement.

This raises the question of whether the audit report is qualified if the answer is 'yes', where there is either a financial or compliance qualification.

Many members are concerned that they are unable to get the member reporting section to add to obtain the members balance. This occurs because the opening balance is not collected on the form. As the value at S is to be the closing members balance, the allocated earnings figure must be the earning net of expenses and taxes. This is to ensure the correct balance is reported for the Superannuation Co-contribution.

Click here to access more information on the ATO website.

The Institute has been approached by the Wealth Editor of The Australian, Geoffrey Newman, regarding a media opportunity to interested members that specialise in providing advice to clients on superannuation. The Australian newspaper is after Q&As for their 'What to do' section. The requirements for submitting Q&As are provided below:

• Both the Q&A needs to be supplied by you as the author
• There is no limit to what issue you want to cover (even it has been covered previously), however, there is no guarantee that your Q&A will run and will be up to the editorial discretion of the paper
• Please supply both your Q&A by Friday, 14 November 2008
• You may supply more than one Q&A (the more the better and more chance that your Q&A will run)
• This is a public relations opportunity, your name and your company's name will accompany your Q&A (you will not be remunerated for your Q&A).

If you are interested in taking up this opportunity please contact Ben McAlary ben.mcalary@charteredaccountants.com.au to request more information or to submit your Q&As

Audit of Self Managed Superannuation Funds Workshop

Throughout October in Brisbane, Perth, Adelaide, Sydney and Melbourne. With the increase in the number of reviews and audits of self managed super funds to 11,000 and new competency requirements in effect, here is your chance to understand those requirements and ensure you comply.

Self Managed Superannuation Funds Seminars

Throughout November in Brisbane, Perth, Adelaide, Sydney, Parramatta and Melbourne. Are you across all the latest SMSF strategies? Accurately establish effective estate and pension plans for your clients.

Disclaimers

This is an initiative of, and has been prepared by the Technical Standards Team of the Institute of Chartered Accountants in Australia. While every effort has been made to ensure the accuracy of the information contained therein, neither the Institute nor its employees shall be liable on any grounds whatsoever in respect of decisions or actions taken as a result of using this publication. The information provided is a general guide only and should not be used, relied on or treated as a substitute for specific professional advice or referral to the relevant specific standard.

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