About Investment Strategies
Copyright Eric J Taylor, B Com (Adel), FIPA, CTA    All Rights reserved
E-Mail: auditor@aust-smsf-audits.net.au
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What does an auditor look at in an investment strategy?

 

Firstly, why does a fund have an investment strategy and what does it mean.  It is a requirement of the SISA that every self-managed superannuation fund must have an investment strategy and that the strategy must be reviewed rgularly and a least annually.  Further, SISA r.4.09 requires every investment strategy to consider 5 particlular matters.  The ATO has also stated that any breach of r.4.09 is a reportable breach of the SISA and an auditor is required to lodge an Auditor Contravention Report where such a breach occurs.  It is also a requirement that SMSFs invest in accordance with their investments strategy.  Failure to do so may place the trustee in breach of SISA s.55.

 

What is a strategy?  If one referece to the Oxford dictionary, one will read that a strategy is "a plan that is intended to achieve a particular purpose".  If a plan is too vague, how can it be followed to achieve that goal.  In recent years, it has been noted that investments strategies have come to include a wide selection of asset classes with investment ranges of 0% to 100%.  The ATO has stated that such open statements is not a strategy.  In my opinion, a strategy should only include asset classes that the trustee does intend to invest in and if the trustee includes an investment range, those ranges should be reasonable and show how the trustees plan to invest.  It should be noted that the SISA does not require investment ranges.

 

In February 2020, the ATO issued a guidance paper on how they believe trustees should view their investment strategy, being QC 23320.  All trustees shoud be aware of this guidance paper.

 

When an auditor is reviewing, they will consider 2 matters.  Does the stratgey comply with r.4.09 and are the investments in accordance with the strategy.  Reg. 4.09 requires the strategy to include these 5 matters:

 

The investment strategy is not just another piece of paper to file.  It is a forward looking plan of where the trustees are heading.

 

About Investment Strategies.

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