Bank feeds have made it considerably easier for accountants to keep track of transactions within a self-managed super fund. Payments and deposits can be imported automatically, saving time that would otherwise be spent entering figures manually. However, while a bank feed can tell you how much money has moved and when, it doesn’t always tell you why.
A $50,000 deposit, for example, could be a member contribution, a rollover from another super fund or a transfer between two accounts belonging to the same SMSF. The amount might reconcile perfectly with the bank statement, but the accountant still needs to establish what the transaction represents before deciding how it should be recorded.
This distinction is particularly important when preparing annual accounts and ensuring the fund’s records are suitable for review and audit. While SMSF compliance software can help accountants organise financial information and supporting documents, understanding the circumstances behind a transaction still requires professional judgement.
Why the Supporting Documents Matter
Consider an SMSF that owns an investment property. Throughout the financial year, the fund might make payments for maintenance, insurance, council rates and improvements to the property. The bank statement will show the amounts paid, but the descriptions may offer little detail about the actual work completed.
A payment to a building contractor could relate to routine repairs or a substantial improvement to the property. That distinction can affect how the expense needs to be treated in the fund’s accounts and tax calculations. Without an invoice or other supporting information, the accountant may have very little to work with beyond the supplier’s name and the amount paid.
Supporting documents provide the detail needed to make these decisions. They also allow someone reviewing the accounts to understand why a transaction has been classified in a particular way. Rather than simply accepting an entry because the figures reconcile, the reviewer can refer to the underlying evidence and assess whether the treatment is appropriate.
The same principle applies to contributions and rollovers. A deposit in the bank account doesn’t automatically establish which member it belongs to or the nature of the payment. Accountants may need to examine contribution records, rollover documentation or correspondence with the trustee before the transaction can be properly classified.
Keeping a Record of the Decisions Made
Sometimes the supporting document is straightforward. An invoice clearly describes an expense, the amount matches the bank statement and there is little uncertainty about how the transaction should be recorded.
Other situations require additional investigation. An accountant might need to speak with the trustee, review several documents or clarify the circumstances surrounding an unusual payment. Once the issue has been resolved, it’s worth recording enough information to explain the decision.
This doesn’t mean writing a lengthy explanation for every transaction. A short note identifying the relevant documents and the reason for the accounting treatment may be sufficient. The important thing is that another accountant can understand the decision without having to repeat the original investigation.
It’s also useful to distinguish between information supplied by a trustee and evidence supported by formal documentation. A trustee might explain that a payment relates to a particular investment, but the accountant may still need an agreement, invoice or statement to confirm the details.
These records become particularly valuable when a file is reviewed months later. The person carrying out the review may have had no involvement in the original conversation, so a clear explanation can save considerable time.
Don’t Leave Every Question Until Year End
One of the frustrations of preparing SMSF accounts is discovering an unusual transaction long after it occurred. A payment made in August might not be investigated until the following July, when the trustee has forgotten the details or struggles to locate the relevant paperwork.
Following up on unclear transactions throughout the year can make preparation considerably smoother. Trustees are generally better placed to explain a payment while the circumstances are still fresh, and supporting documents may be easier to retrieve before they disappear into old emails or filing systems.
There will still be occasions when additional information changes the original accounting treatment. An entry initially recorded as an ordinary expense might need to be adjusted once the accountant receives an invoice showing that it relates to a capital improvement.
When this happens, retaining both the supporting evidence and a brief explanation of the adjustment makes the work easier to follow. It helps reviewers understand why the original entry was changed and reduces the likelihood of the same question being raised again.
The ATO’s record-keeping requirements for SMSFs include maintaining accounting records that explain the fund’s transactions and financial position. For accountants, that means paying attention to the information behind the figures, not simply whether the bank balances agree.
A well-prepared set of accounts should allow another accountant, reviewer or auditor to follow the treatment of a transaction and find the evidence supporting it. Getting to that point often comes down to asking the right questions, collecting the relevant documents and recording the reasoning while the information is still available.
