How representation letters help trustees avoid complacency

On the back of recent amendments to the Superannuation Industry (Supervision) Act allowing a change in financial statement signatory requirements, questions are being asked about whether audit documentation should also be subject to those changes.

Specifically, some have questioned whether there is still a need for Trustee Representation letters to continue to require a complete set of signatures from all Trustees/Directors.

However, there are very strong reasons for this practice to continue – and it goes beyond simple compliance.

From 1 July 2021, the Treasury Laws Amendment (Self-Managed Superannuation Funds) Bill 2020 increased the maximum number of members in an SMSF from four to six.

Further to this, if an SMSF has four members, at least two trustees or directors must sign off on the financial statements of a fund. Should an SMSF have five or six members, then at least three trustees or directors must provide signatures on financial statements.

This rule does not – and I would argue, should not – apply to audit documentation, especially the Trustee Representation letters.

If we look at the case of Shail Superannuation Fund v Commissioner of Taxation, where Mrs Shail was left to foot a significant taxation bill after her husband made withdrawals from the SMSF and fled overseas, it is not enough to claim that because she had no knowledge of a situation, you should bear no responsibility.

In fact, as a Trustee, it is your responsibility to ensure you are aware of the actions taking place within your SMSF, and confirming the detail contained within a Trustee Representation letter should be the bare minimum level of engagement with your SMSF.

The Representation letter provides confirmation that financial statements and other documentation have been prepared in accordance with the applicable reporting framework and other statutory requirements.

It also confirms that the auditor has been provided with all relevant information and access and that all transactions have been recorded and reflected in the accounting records underlying the financial report, and contains confirmation of major asset valuation method, or members’ transfer balance accounts.

Further to this, the Letter provides confirmation that the SMSF is compliant with both the Superannuation Industry (Supervision) Act, and Superannuation Industry (Supervision) Regulations, including that Trustees, are not disqualified persons and that the fund continuously meets the definition of an SMSF.

Given the information contained within the letter, it makes sense then that auditors would rightly expect to have an acknowledgement of the accuracy of the details from all Trustees, and why a complete set of signatures remains necessary.

The primary purpose of the Letter serves to remind Trustees that they are accountable and responsible for their fund and take notice of the information contained within the letter, to ensure its accuracy.

It is up to the Trustees to ask questions of other fund members and seek evidence and clarification if required, to prove that the details provided are correct and true. Not only for the sake of meeting compliance requirements but also to protect themselves and their assets.

Your SMSF is an investment for your retirement future, so why would you put yourself and your future at risk, by simply accepting the detail within a Trustee Representation letter, without seeking confirmation? Why wouldn’t your fellow Trustees and Directors do the same?

I would argue that continuing to insist on a full set of signatures on Representation letters, enforces Trustee/Director engagement, and provides an opportunity to maintain responsibility and avoid complacency.