Common audit issues with SMSFs having crypto-currencies
SIS Act does not have any restrictions on cypto-currency investment. However the permanent documents needs to be reviewed before making such investment:
- Does the SMSF trust allows such investment?
- Does the investment strategy allow such investment?
- Is there any risk management statement to state how trustee understands cypto-currency investment and how to control the investment risks?
Some cypto-currency account providers do not allow to purchase or store crypto-currencies in the name of the SMSF.
If the wallet is in the name of the SMSF member, then there will some audit issues as below:
- Trustees must maintain separation of assets from personal assets at all times
- The ownership of the crypto-currencies can not be verified
- The money invested in the crypto-currencies may be is a loan to the SMSF and becomes in-house asset
Please note engraving of a code in a piece of metal and placing in vault will not be sufficient to verify the ownership of the crypto-currencies.
Even the wallet can be set up in the name of the SMSF, the following issues also need to examined:
- Valuation at year end. The volatility of the crypto-currencies may make it difficult to verify the valuation and auditor may use the average value per coin.
- The controls for the using of the wallet. Auditors may need the client to authorise to view the wallet information to collect the audit evidence.
The ATO frowns upon purchase of crypto currencies which are not purchased and held with a reputable exchange. SMSF auditors
will exam and verify the existence, ownership and valuation of crypto-currency investment, therefore trustees need to ensure to keep all the evidence regarding cypto-currency investment to satisfy the audit requirements.