#10353
Awan Hammad
Participant

    Hi Jason

    Yes agreed that as the auditor you would need to request a copy of the loan agreement to see if this will meet the requirements of SIS (refer SIS section 67A). The auditor needs to be able to review that the rights of the lender:

    “are limited to rights relating to the acquirable asset“.

    As you refer to the ATO guidelies are at:

    Compliance Audit – Guidance on the minimum expectation of audit checks and evidence for SMSF auditors.

    They require the auditor to check re an LRBA:

    “loan documents to ensure there is limited recourse available to the lender should the fund default on the borrowing” & also:

    “express terms of any guarantee arrangements limit the rights of the guarantor to rights relating to the asset which is the subject of the arrangement”.

    Yes if the loan agreement cannot be obtained technically the auditor should qualify their audit report re SIS section 67A.

    A common approach by auditors is to get the trustees to write to the lender and request confirmation that the loan is on a limited recourse basis when the loan agreement cannot be located. (refer example letter to lender below)

    If other forum members have a view please let the forum know.

    Thanks
    THE AUDITORS INSTITUTE

    EXAMPLE LETTER

    SMSF Lender
    Level 1 Smith Street
    NEWCASTLE NSW 2300

    To Whom It May Concern,

    RE:                                    Smith Super Pty Ltd ATF Smith Superfund
    ACCOUNT NUMBER:      123456

    Our SMSF is being audited. The Auditor has requested a copy of the loan agreement for the loan noted above.

    Can you please provide a copy of the loan agreement directly to our Auditor at the address noted below or advise our Auditor that the loan is a limited recourse loan, where the lender’s recourse is limited to the acquirable asset (as referred to below):

    Name:                  Tom Jones
    Firm:                    Jones Audits
    Address:
    E-mail:
    Phone number:  03 9000 0000

    Property Address – 2 Smith Street Smithville, NSW 2200

    If you have any questions, please contact either of us.

    __________________                                                      _________________
    Paul Smith                                                                 Mary Smith
    Director of Smith Super Pty Ltd                               Director of Smith Super Pty Ltd

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