“It’s important to ensure the financial statements at least meet all the relevant requirements, the first being to remember that an SMSF is not a reporting entity, and the financial statements it prepares are special purpose financial statements – we don't need general purpose financial statements,” Ellem said.

“Therefore you don't need to follow the accounting standards. You can if you want, but if you do, you need to include that in the notes. As they will be special purpose financial statements, the notes also need to disclose the accounting policies and procedures, how the financial statements are prepared, and whether they are determined by trustees.”

The notes are just as important to the audit process as the financial statements and outline how they have been prepared.

“They may be auto-generated by your accounting platform, but have you actually read them? Or do you think no one cares about them? Who reads them? Auditors read them,” Ellem said.

“Over the years I've received comments from auditors asking about whether accountants or administrators read the notes because you have scenarios where auditors read the notes which say the accountants prepared them a certain way but when you look at the actual financials, that's not in accordance, or they're not in line with the notes.”

He continued that as the financial statements are special purpose financial statements, they should be included in the generated notes that they have been prepared to meet the requirements of the Superannuation Industry (Supervision) Act, SIS regulations, and requirements under the trust deed.

“Remember that saying, ‘read the deed, read the deed, read the deed’. Always have a look at the deed. What does the trust deed say about preparing financial statements?” he asked.

“That was an issue that came up a little while ago in relation to amending trust deeds, or creating new trust deeds for a new fund, or establishing a new fund in that there's a change in the accounting standards. If the trust deed itself requires general purpose financial statements, you need to prepare general purpose financial statements and apply all the accounting standards.”

It is best practice to read the deed to ensure it does not have a clause stating there are other requirements that have to be met in preparing the financial statements.

“[Things like] are they meant to be in a specific format? Are there specific reports, and do you also prepare them to meet the requirements of members?” Ellem said.

“Members want to know how much they have got in the fund, or the breakdown of tax components – what's preserved, what's unrestricted non-reserved, and what's the value.”