SMSF Compliance Tips – The SMSF Annual Audit

With assets worth more than $1.01 trillion and more Australians selecting self-managed super funds, the ATO has increased focus on SMSF auditors and their annual reports to govern the sector this year.

So, we have some tips for members and professionals which will ensure a smooth SMSF annual audit that’s in line with 2025 SMSF legislation.

Selecting Your SMSF Auditor

Since 1994 the annual SMSF audit has been a critical component of compliance and safeguard for members’ retirement savings.

First introduced more than 20 years ago to improve compliance, the audit process was tightened further in 2020 to ensure the auditor’s objectivity and credibility of financial results reported to the ATO.

Consequently, today, your SMSF auditor must satisfy a condition of independence; they must be registered with ASIC and completely independent from the Fund, the Fund’s members, and any accounting professional assisting with SMSF administration.

You can use ASIC’s Professionals Register Search to make sure your auditor’s licence is current: https://service.asic.gov.au/search/.But it’s also important to consider an auditor’s reputation, experience and technology, in addition to a focus on changes to legislative frameworks and certifications that impact the audit process, year-on-year to ensure your SMSF audit is compliant, cost-effective, and complete.

Many trustees outsource the vetting process to an SMSF management firm, who knows what to look for in an accredited SMSF auditor, who will offer experience and good value.  

At any time, an auditor can perform a 3-point self-check if uncertain that they satisfy the ATO’s condition of independence.

Preparing For Your SMSF Annual Audit

The annual audit must be completed before your SMSF Annual Return (SAR) can be lodged with the ATO. This means any delays in the audit process can have a knock-on effect, triggering fines and penalties that escalate with time.

Your auditor will ensure the Fund’s financial statements are accurate and test compliance with the Superannuation Industry (Supervision) Act 1993 (SIS Act).

To ensure a pain-free and timely audit, you’ll need to have the Fund’s financials and supporting documentation ready for your auditor well before the SAR due date. The process can’t be left to the last minute, because the auditor will need time to review, query and sign off your paperwork.

What to prepare for your audit:

• Accurate Financial Records: including member statements, bank transactions, investment valuations, contribution and pension records, and any expenses paid by the fund.
• Proper Fund Documentation: encompassing trust deed, investment strategy, minutes of trustee meetings, and documentation of any asset purchases or related-party transactions.

Once an SMSF audit is completed, any subsequent reviews by the same auditor are much more efficient as they become more familiar with your Fund’s structure, historical transactions and potential issues.

The Top 3 Compliance Issues Uncovered by SMSF Auditors

1. Loans to members or relatives

The most common breach of compliance discovered through the auditing process is loans to related parties.

Superannuation legislation bans SMSFs from lending money or providing financial assistance to a member or their relatives, regardless of the terms of the loan. Using Fund finances for personal expenses, debt repayment or guarantees or security arrangements is not allowed.

In fact, when new auditor independence conditions were introduced in the 2020-2021 Financial Year, illegal loans accounted for 16% of all breaches cited in auditor contravention reports worth more than $200M.

Prohibited loans from a SMSF to related parties attracts a penalty of up to $18,780 per trustee, and can lead to disqualification of trustees and limitations upon the fund.

2. Incorrect valuation of assets

Lack of accurate, regularly updated valuation of assets held in the Fund is a major focus of the ATO in 2025.

With the value of SMSFs and their members' balances becoming increasingly important, impacting contribution caps, pensionpayments and more, both auditors and the ATO have an increasingly tough stance onincorrect valuation of assets.

To be considered valid, the ATO requires a market valuation to be based on objective, supportable data. Further, any related party assets acquired by the Fund must be at market value, with an independent formal valuation undertaken as close to the transaction as possible where relevant.

Auditors will want to see how each value was determined and who provided it. If valuations are found to be deficient, the auditor must lodge a contravention report to the ATO. Last year, auditors notified the ATO of more than 16,000 SMSFs which had reported the same value for property or unlisted trust for three consecutive years. Since, 80% of those property valuations have been updated.

Upon detecting a breach regarding the valuation of assets, the ATO can apply penalties for trustees -and compliance action for auditors.

3. Missing documentation

Outdated or non-existent trust deed updates are a recuring audit issue in 2025. If your fund can’t show records, the auditor may not be able to form an opinion, triggering delays and risking compliance action.

It’s important that your trust deed and strategy is up to date and aligned with current laws and Fund activities.

Consequences for Non-Independent Auditors

In recent years, increases in breaches of the independence rule has resulted in referrals and deregistration by ASIC. Consequently, this has become a mounting compliance risk for trustees relying on auditors with conflicts.

Last year, the ATO referred 45 SMSF auditors to ASIC for independence concerns compared with 41 the previous year. Meanwhile, 51 auditors voluntarily deregistered in 2024 amid the crackdown, continuing a churn in the sector of approximately 15% each year since independence requirements created more complex regulatory conditions in 2020.

In April this year, the ATO published a long list of focus areas they use to assess the independence of an SMSF auditor. This includes firms where financial advice and auditing is performed by one person, or reciprocal arrangements exist between accounting and auditing firms.

The Independence Test for SMSF Auditors (3 Threats Model)

By focusing only on highly technical SMSF accounting, including regulatory change, software developments, and service partners since 2011, Prime has developed the most reliable and efficient SMSF compliance solutions for SMSF members and finance professionals.

With solutions and services encompassing SMSF accounting, auditing, lodgements, and client management systems, Prime solves the time, cost, and stress associated with SMSF compliance.

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