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Audit of an SMSF that has invested in Crypto Currency - Checklist

As an SMSF auditor, auditing an SMSF with an investment in Crypto currency is new. In this newsletter, we are providing suggested checklist points and how you should update your working papers and put a comment in your management letter when you see a large percentage of SMSF assets invested in Crypto currency. This checklist has been drafted after ATO's new opinion on how Crypto currency has to be treated in an SMSF.

This checklist is available online on www.onlinesmsfaudit.com.au - If you have only a few funds invested in Crypto Currency - you can simply register for free and 5 funds will be credited to your account - Audit SMSF's risk free. 

 

Click here to download Trustee Declaration, Minutes of the meeting + Valuation of Asset sheet + Comment in Management letter.

 

 

Checklist Point

 

Audit Comment "Yes"

Audit Comment "No"

1. Is the Crypto Currency Account in the name of Trustees of the SMSF and there is no borrowing and is not acquired from any related parties ?

The Crypto Currency account (wallet) is in the name of the Member of the SMSF (XXXXX) however there is a Declaration of Trust in place that the account is held as custodian for the Super Fund. Inspected minutes to ensure that the Custodian was appointed by the Trustees of Fund. The Trustees have give assurance that the Private Key to the wallet is secured and is with another Trustee of the fund. There is no borrowing by the fund and the Crypto currency was not acquired (purchase or contribution) from the members or from any related parties.

(1) The Crypto Currency account (wallet) is in the name of the Member of the SMSF (XXXXX) however there is no Declaration of Trust in place that the account is held as custodian for the Super Fund. This is a breach of Regulation 4.09A of SIS Regulations. (2) There are no minutes of meeting to properly appoint any Custodian by the Trustees of Fund. This is in breach of Sec , 35AE and 35B of SIS Act (3) There was no evidence of internal control as the Trustees gave no assurance that the Private Key to the wallet is secured and is with another Trustee of the fund. (4) The fund has borrowed and the borrowing is not as per the exceptions listed in section 67A and 67B of SIS Act. This is a breach of Section 67(1) of SIS Act. (5) There is evidence that there are transactions in the crypto currency account which are transfers from other accounts belonging to related parties of the fund - these could be purchases or contributions. This is a breach of Sec 66 of SIS Act. (6) There is a charge over the crypto currency account. This is in breach of SIS Regulation 13.14.

This is line with SIS Regulations 4.09A - Operating Standard - money and other assets to be kept separate and in line with borrowing rules as per Section 67 Of SIS Act or there is charge over the account as per SIS Regulations 13.14. Also as per Section 66 - acquisitions of certain assets from members.

<Management

Letter>

During the course of my audit, I found that the fund has not complied to the following (1) The Crypto Currency account (wallet) is in the name of the Member of the SMSF (XXXXX) however there is no Declaration of Trust in place that the account is held as custodian for the Super Fund. This is a breach of Regulation 4.09A of SIS Regulations. (2) There are no minutes of meeting to properly appoint any Custodian by the Trustees of Fund. This is in breach of Sec , 35AE and 35B of SIS Act (3) There was no evidence of internal control as the Trustees gave no assurance that the Private Key to the wallet is secured and is with another Trustee of the fund. (4) The fund has borrowed to purchase the Crypto currency and the borrowing is not as per the exceptions listed in section 67A and 67B of SIS Act. This is a breach of Section 67(1) of SIS Act. (5) There is evidence that there are transactions in the crypto currency account which are transfers from other accounts belonging to members and related parties of the fund these could be purchases or contributions. This is a breach of Sec 66 of SIS Act. (6) There is a charge over the crypto currency account. This is in breach of SIS Regulation 13.14.
 

<Audit Report Qualification>

Trustee of the fund have breached the SIS Act and SIS Regulations whilst investing in Cryptocurrency (1) The Crypto Currency account (wallet) is in the name of the Member of the SMSF (XXXXX) however there is no Declaration of Trust in place that the account is held as custodian for the Super Fund. This is a breach of Regulation 4.09A of SIS Regulations. (2) There are no minutes of meeting to properly appoint any Custodian by the Trustees of Fund. This is in breach of Sec , 35AE and 35B of SIS Act (3) There was no evidence of internal control as the Trustees gave no assurance that the Private Key to the wallet is secured and is with another Trustee of the fund. (4) The fund has borrowed to purchase the Crypto currency and the borrowing is not as per the exceptions listed in section 67A and 67B of SIS Act. This is a breach of Section 67(1) of SIS Act. (5) There is evidence that there are transactions in the crypto currency account which are transfers from other accounts belonging to members and related parties of the fund these could be purchases or contributions. This is a breach of Sec 66 of SIS Act. (6) There is a charge over the crypto currency account. This is in breach of SIS Regulation 13.14.
 

<Contravention Report>

Trustee of the fund have breached the SIS Act and SIS Regulations whilst investing in Cryptocurrency (1) The Crypto Currency account (wallet) is in the name of the Member of the SMSF (XXXXX) however there is no Declaration of Trust in place that the account is held as custodian for the Super Fund. This is a breach of Regulation 4.09A of SIS Regulations. (2) There are no minutes of meeting to properly appoint any Custodian by the Trustees of Fund. This is in breach of Sec , 35AE and 35B of SIS Act (3) There was no evidence of internal control as the Trustees gave no assurance that the Private Key to the wallet is secured and is with another Trustee of the fund. (4) The fund has borrowed to purchase the Crypto currency and the borrowing is not as per the exceptions listed in section 67A and 67B of SIS Act. This is a breach of Section 67(1) of SIS Act. (5) There is evidence that there are transactions in the crypto currency account which are transfers from other accounts belonging to members and related parties of the fund these could be purchases or contributions. This is a breach of Sec 66 of SIS Act. (6) There is a charge over the crypto currency account. This is in breach of SIS Regulation 13.14.
     
     

2. Does the investment in Cryptocurrency meet the sole purpose test?

Confirmed that the fund was not set up only to purchase Cryptocurrency as the fund has other assets. Checked by the number of trades conducted by the Trustee, it does not appear that the Trustees are using the Crypto currency account as a business.

(1) Checked the trading account of the Crypto currency, there is evidence that the account is being used for Trustee personal use. This is a breach of Section 62 of SIS Act. (2) Checked the trading account of the Crypto currency and noted that there are a large number of transactions. These transactions show that the trustee is trading in Cryptocurrency and could be treated as a business.

This is in line with SIS Act Section 62 - Sole Purpose test

 <Mgt Letter>

During the course of my audit, I discovered that the (1) the trading account of the Crypto currency, there is evidence that the account is being used for Trustee personal use. This is a breach of Section 62 of SIS Act. (2) the trading account of the Crypto currency have a large number of transactions. These transactions show that the trustee s trading in Cryptocurrency and could be treated as a business. Although business are allowed in an SMSF, however due the risky nature of the transactions, it is my role to alert you of losing capital of the fund.
  <Audit Report Qualification>

The trading account of the Crypto currency, there is evidence that the account is being used for Trustee personal use. This is a breach of Section 62 of SIS Act.
  <ACR>

The trading account of the Crypto currency, there is evidence that the account is being used for Trustee personal use. This is a breach of Section 62 of SIS Act.

 

 

               MORE CHECKLIST POINTS AFTER THE ADVERTISEMENT BELOW                 

    

 

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Our trust deed permits the trustee to invest in crypto currency, click here to learn how to update your SMSF trust deed for $125 Incl. GST..

 

 

 

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CPD Requirement for SMSF Auditors

 

SMSF Auditors: SIS Regulations 9A.04

(1)  For paragraph 128F(a) of the Act, the requirements in this regulation form the continuing professional development requirement.

             (2)  The approved SMSF auditor must undertake at least 120 hours of continuing professional development every 3 years.

             (3)  The development must:

                     (a)  include 30 hours of development about superannuation at least 8 hours of which is development about auditing of self managed superannuation funds; and

 

                     (b) : be development that could reasonably be expected to enhance an approved SMSF auditor's technical skills or professional service delivery.

 

Click here for 6 CPD hours for $165 for SMSF Auditors

 

 

This is what one of the attendees had to say about our presenstation: 

Thank you for inviting me to your seminar. I really learnt a lot of practical SMSF audit issues from you which I did not know before. I really liked your presentation style and the way that you conducted the technical seminar explaining things on the white board. I been to many seminars including NTAA SMSF School and SMSF workshops but your presentation was quite unique and much better as it was targeted at my level and I could understand complexities of the new SMSF law.

Thank you again for explaining a lot of difficult topics such as CGT relief, death benefits, ECPI etc in such an easy manger. You’re one of the best!

Ash Alam CPA, Registered Tax Agent 

Justice of the Peace & SMSF Auditor

 

 

 

 

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CPD Hours : 6 Hrs in SMSF & Audit - 2 Hrs in Superannuation & 4 Hours in Auditing SMSF's

Topics

  • Do more with less time using an Online Audit Program
  • Audit of Funds with Pension members above Transfer Balance Cap Amount
  • SMSF audit under the new regime of Contributions / Total Superannuation Balance
  • CGT Relief - What is it and who can claim and how to audit funds who have claimed them

 

Seminar : Let us show you... How to reduce SMSF Audit time in half! - 6 CPD hours in SMSF Audit

 

 

Venue: Novotel - Parramatta      Date: 9th October 2018 - 3 SEATS LEFT

Venue: Hilton Sydney - City     Date: 13th November 2018

 

Timings : 09:00 am to 04:30 pm

 

Cost: The fee for seminar is $165 Incl. GST and is tax deductible(Plus Travel). Includes 10 audits worth $187 Incl. GST

 

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Proposed Agenda

8. 30 - 9.00 AM  Registration - Arrival Tea and Coffee

09.00 AM Technical Session -  Audit of SMSF - Transfer Balance Cap | Contributions & Total Superannuation Balance | CGT Relief

11.00 AM  Tea/Coffee Break

11:30 AM  Introduction to Audit Online on SMSF Audit Software and Website integration

01:00 PM Lunch and Group Discussion on Audit of funds with LRBA - Loan from related party - how repayment of Loan will be considered  

02.00 PM  How to complete an audit in half the time

4.30 PM  Workshop Closed

 

Introduction/Overview

SMSF Auditors spend too much time in financial audit and completing manual audit working papers, our online software does most of this work automatically & saves half your time as compared to traditional auditing methods.

It checks closing share prices, dividends received from ASX and all mundane tasks of signing, scanning & mailing of audit report, Mgt. letter, engagement letter, Invoice & contravention reports etc. are automated with one click of a mouse. Embrace an efficient framework for high quality audits and conduct audits on a flawless workflow Management system.

Achieve peace of mind & confidence of knowing that you are using a completely up-to-date online checklist and cloud process to deliver a robust, hassle free top quality SMSF audit. Improve communication with accountants & trustees. Manage 20 or 2000 audits by streamlining workflow from our smart Audit Manager & establish seamless communication between all parties. Our online SMSF audit system is the only tool which can deliver reliability, speed and volume and ultimately profits for your business at a fraction of the cost.

 

Benefits/learning outcomes

Audit from anywhere, anytime from any device on your own website or by integrating with ours. Increase audit effectiveness, add value, reduce audit risk, drive SMSF compliance, revolutionise your business.

Included in the fee is an account to audit 10 SMSF on the online platform worth $187 and Lunch. Those auditors who are already using the online software will benefit by learning new shortcuts and other advanced features of the online software. 

 

Recommended For

All SMSF ASIC approved auditors.

Session Notes

CPD Hours

2 Hours CPD in Superannuaiton and 4 Hours CPD on auditing SMSF's Total 6 CPD hours under self assessment method under RG 243.88 - 90 and SISA 128Q and SISR 9.04

RG 243.89 You will need to complete 120 hours of CPD over each three-year period, which must include 30 hours of development on superannuation and at least 8 hours of development on auditing SMSFs.

SISR 9A.04 (3) (b)  be development that could reasonably be expected to enhance an approved SMSF auditor's technical skills or professional service delivery.

 

Attendee Requirements

Attendees may bring their own Laptops / Ipads for a better understanding - although some attendees may get more from the workshop by looking at the facilitators screen 

Speaker

Manoj Abichandani 

Manoj has worked in SMSF since 1988 and is SMSF Specialist (UNSW). He was providing high level advisory services to over 600 funds in his own 3 partner CPA tax practice for 19 years and has written this online software. He currently works as SMSF Technical Support Team Leader at www.trustdeed.com.au

He has hands on knowledge on what happens in a tax practice on high level of SMSF practical issues. 

 

 

 

Checklist Point

 

Audit Comment "Yes"

Audit Comment "No"
     

3. Is Cryptocurrency investment allowed by the Trust Deed and the Trustees have an investment strategy to hold Cryptocurrency?

Checked the trust deed of the fund and clause number XXX allows investment in Cryptocurrency. Checked the investment strategy of the fund and noted that the trustees have considered various risks in investments in Cryptocurrency.

Checked the trust deed of the fund and clause number XXX allows investment in Cryptocurrency. Checked the investment strategy of the fund and noted that the trustees have considered various risks in investments in Cryptocurrency. This is a breach of Section 52B of SIS Act and Regulation 4.09 of SIS Regulations.

 

 

 
 

<Mgt Letter>

 

 

 

During the course of my audit, I discovered that the trust deed of the fund does not allow investment in Cryptocurrency and checked the investment strategy of the fund and noted that the trustees have not considered various risks in investments in Cryptocurrency. This is a breach of Section 52B of SIS Act and Regulation 4.09 of SIS Regulations.

This is in line with SIS Act Section 52B and SIS Regulations 4.09 regarding the operating standard - Investment Strategy

< Audit Report Qualification>

 

 

 

 

 

The trust deed of the fund does not allow investment in Cryptocurrency and the trustees have not considered various risks in investments in Crypto currency in the investment strategy of the fund. This is a breach of Section 52B of SIS Act and Regulation 4.09 of SIS Regulations.

 

 

 
 

<ACR>

 

 

The trust deed of the fund does not allow investment in Cryptocurrency and the trustees have not considered various risks in investments in Crypto currency in the investment strategy of the fund. This is a breach of Section 52B of SIS Act and Regulation 4.09 of SIS Regulations.
     

4. Is the Crypto Currency valued correctly at Market Value on 30th June in the financial statements?

Checked the Market Valuation of Crypto currency as on 30th June from the XXXX Currency exchange. The valuation was $XXXX and in the financial statements it is stated at $XXXX. I am satisfied that the difference is Market Value is not Material. At the time of signing the audit report the market value was $XXX and the difference as stated in the financial statement is not material.

Checked the Market Valuation of Crypto currency as on 30th June from the XXXX Currency exchange. The valuation was $XXXX and in the financial statements it is stated at $XXXX. There is a material difference is Market Value. At the time of signing the audit report the market value was $XXX and the difference as stated in the financial statement is material. A note should be inserted in the financial statements regarding this material difference. This is a breach of SIS Regulation 8.02B.

This is in line with Auditing standard ASA 560 and auditing standard on Subsequent Events and Material events SIS Regulation 8.02B regarding Asset must be valued at market value.

 

 

<MGT Letter>

 

 

 

 

 

During the course of my audit, the Market Valuation of Crypto currency as on 30th June from the XXXX Currency exchange. The valuation was $XXXX and in the financial statements it is stated at $XXXX. There is a material difference is Market Value. At the time of signing the audit report the market value was $XXX and the difference as stated in the financial statement is material. A note should be inserted in the financial statements regarding this material difference or you should consider amending the financial statements showing the assets true value. This is a breach of SIS Regulation 8.02B.
 

<Audit Report Qualification>

 

 

 

 

The Market Valuation of Crypto currency as on 30th June from the XXXX Currency exchange. The valuation was $XXXX and in the financial statements it is stated at $XXXX. There is a material difference is Market Value of the asset. Further at the time of signing the audit report the market value was $XXX and the difference as stated in the financial statement is material. This is a breach of SIS Regulation 8.02B.
 

< ACR>

 

 

 

The Market Valuation of Crypto currency as on 30th June from the XXXX Currency exchange. The valuation was $XXXX and in the financial statements it is stated at $XXXX. There is a material difference is Market Value of the asset. Further at the time of signing the audit report the market value was $XXX and the difference as stated in the financial statement is material. This is a breach of SIS Regulation 8.02B.
     

5. Is the Capital Gain on Cryptocurrency correctly stated?

Checked every purchase and sale of Crypto Currency in the account and determined that each capital gain or loss is correctly reported in the financial statement

Checked in the account and determined that transaction of date XXX of $ XXX is not reporting the correct amount of capital gain or loss as reported in the financial statements.

This is in line with ATO tax determinations TD 2014/25 and TD 2014/26 and announcements from ATO that the any transaction of $10,000 and above will be reported to AISTRAC

<Mgt Letter>

 

 

 

 

During the course of my audit, transaction of date XXX of $ XXX is not reporting the correct amount of capital gain or loss as reported in the financial statements. This difference is / is not material. This is a breach of Section 35B of SIS Act.

 

 

 
 

<Audit Report Qualification>

 

 

The transaction of date XXX of $ XXX is not reporting the correct amount of capital gain or loss as reported in the financial statements. This difference is / is not material.
 

<ACR>

 

Transaction of date XXX of $ XXX is not reporting the correct amount of capital gain or loss as reported in the financial statements. This difference is not material. Incorrect amount of tax is calculated by the trustees of the fund. This is breach of Section 35B of SIS Act
     

 

 
 
 
 
 
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