Crypto in SMSF’s - Requirements for Auditors are in - Here's what you need to know
Listen up SMSF Accountants, I know you know all about Cryptocurrency by now – because.. everyone does. I want to draw your attention to something you may not know – and that is what does the SMSF Auditor look for when Auditing an SMSF with Crypto
The ATO Released something of late – something akin to guidance to really help out the auditor – because what they are saying is that, if an SMSF Auditor audits a super fund… and that super fund has Cryptocurrency…. And that cryptocurrency is material to the fund… and the auditor has not performed the correct audit procedures around substantiation … then that lands the auditor in strife.
So here it is, when an SMSF Auditor begins an audit and they get up to the part where they then have to perform procedures on your material cryptocurrency they should see that the deed first allows the trustee to even invest in here in the first place, or at least, not prevent it from investing in cryptocurrency.
From there, does the investment strategy allow for such an investment, or rather, not prevent or limit the fund from doing so. Is it in the diversification tolerance? Has risk been considered?
Does the evidence show that the Cryptocurrency is held and owned by the smsf? Looking at this closer though – I have seen more than a handful of times where it is contained in what’s known as a cold wallet. The whole allure (at least in its inception) of cryptocurrency was to prevent certain parties knowing and maintaining obscurity.
With all the above and evidence to show the above we then turn to what its worth. Do we have cryptocurrency units firmly known to us so that we can see some public information as to what each unit traded at a historical point in time?
Perhaps the cryptocurrency is held in whats known as a Cryptocurrency Exchange. These are the mechanisms in which cryptocurrency is first acquired I believe. You convert Australian Dollars to Bitcoin, or Etherium for instance – so far this all sort of sounds like putting money into a managed fund, a brokers platform or similar. An exchange is a platform to do these actions, only with Crypto. After an individual does this for the first time, its really not that scary.
The ATO recently released some guidance for auditors in addition to what they already have available in the past. It is expected from SMSF Auditors that where Cryptocurrency is held in an exchange – that we must obtain a type 2 report from the exchange. A type 2 report is an independent report from a large auditor to test controls etc, see if systems are functioning as they should and ultimately give comfort to the trustee that their investment is tested to know that its secure. Relax, just because your exchange does not pay for type 2 controls testing does not mean they are guaranteed to lose their investment assets. It just means its riskier. With a type 2 report we should be performing further testing, before determining the accuracy of the reported amount.
Without the type 2 report, however, auditors need to be modifying their audit opinion under Part A & Part B of the Auditors Report and lodging an ACR.
Here is a link to the ATO publication
FAQ
Am I allowed to invest in Cryptocurrency?
Yes, as long as your deed and strategy says you can.
Am I allowed to invest in a Cold Wallet or is an Exchange more appropriate?
I personally feel that an exchange is more secure and easier to perform audit procedures on. But both will ultimately still mean a qualified audit opinion for a trustee.
Crypto in SMSF’s