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Events subsequent to balance date ~ COVID-19 disclosure for SMSF

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The recent impact of COVID-19 on the value of fund assets has meant that funds that have not yet completed their accounts for the 2019 financial year should disclose the pandemic as a significant event in the Events Subsequent to Balance Date note in the fund’s annual financial report to prevent delay with the audit.

This uncertainty is creating risks that funds may not have encountered before. As a result, trustees (and their accountants) should assess whether and how they are affected, and the impact on their financial report.

COVID-19 had been accepted as a non-adjusting subsequent event for all year ends prior to it being announced as a pandemic in March 2020.

Where the audit for 2019 have been completed and there has subsequently been a material reduction in the value of some funds’ assets there is no requirement for ongoing audit disclosure for the 2019 year.

However, accounts that are still to be completed for 2019, there is an obligation for the auditor to deal with the question about significant events subsequent to the balance date.

2019 Financial Year – Notes to the Financial Statements

Subsequent events, like COVID-19, that could have a financial impact to the fund are required to be included in the Events Subsequent to Balance Date note to the financial statements.

The note should include the acknowledgment that there were no impacts in the 2019 financial year and the trustee’s responsibility to continuously monitor & evaluate the impact that COVID-19 on the funds abilities to pay its liabilities & future retirement benefits.

Example note: Event Subsequent to Balance Date (COVID-19)

Subsequent to the end of the financial year there have been considerable economic impacts in Australia and globally arising from the Coronavirus (COVID-19) pandemic, and Government actions to reduce the spread of the virus.

At the date of signing the financial statements the Trustees are unable to determine what financial effects the outbreak of the virus could have on the fund in the coming financial period.

No financial effects arising from the economic impacts of the virus have been included in the financial statements for the year ended 30 June 2019. The impacts may include a significant reduction in the carrying value of the SMSF assets and investments. The Trustees acknowledge their responsibility to continuously monitor the situation and evaluate this impact including whether the fund remains a going concern and its ability to pay its liabilities and future retirement benefits.

What the auditor will do – 2019 financial year

Our auditors will be including a paragraph (similar to the example wordings provided for financial reports) into all representation letters for funds have not yet completed their accounts for the 2019 financial year

Representation Letter

The trustee representation letter is a form of audit evidence. It is written confirmation of certain understandings between the auditor and the trustees. It is used to support other audit evidence and to provide evidence that is otherwise not available.

Auditors sign off on certain sections of SIS relying on the trustee representation letter as critical audit evidence along with other additional audit evidence.

The letter is also a reminder to trustees that assets are held in accordance with the investment strategy, are registered in the name of the fund and should be carried at market value.

Every item in the representation letter falls into one of the following three categories:

Financial Audit – Trustees acknowledge their responsibility for

  1. the fair presentation of the financial report in accordance with the adopted applicable financial reporting framework
  2. the design and implementation of internal controls
  3. approval of the financial report and that the misstatements are immaterial

Compliance Audit –  Trustees acknowledge that they have conducted the affairs of the SMSF in compliance with the SISA and SISR throughout the period

Both the Financial audit and the Compliance audit – the representation letter confirms specified matters when other sufficient appropriate audit evidence cannot reasonably be expected to exist.

2020 and beyond

Given the impact of the coronavirus on the value of fund assets is likely to continue past 30 June 2020, trustees might also be required to disclose COVID-19 as a significant event in their accounts for the 2020 financial year.

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This information is intended to provide general information only and has been prepared without taking into account any particular person’s objectives, financial situation or needs. Before acting on such information, you should consider the appropriateness of the information

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The Horizon Group of Companies
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