The Australian Taxation Office (ATO) is continuing to develop specific audit guidance for cryptocurrency and digital assets held by self-managed superannuation funds (SMSFs), with updated guidance expected to be released for industry consultation.
According to key messages from the ATO's SMSF Auditors Professional Association Stakeholder Group, progress has been made on dedicated crypto asset auditing guidance, with the ATO indicating that draft guidance would be provided to stakeholders for comment.
This is a significant development for auditors, accountants and trustees given the continued growth of cryptocurrency investments within the SMSF sector.
Industry feedback suggests that the ATO's focus is likely to extend beyond valuation and ownership concerns, with existence and custody arrangements emerging as some of the most challenging audit issues facing SMSF auditors.
Cryptocurrency presents unique challenges for SMSF auditors. Unlike traditional investments such as listed shares or bank accounts, digital assets can create difficulties when verifying:
As SMSF investment in crypto assets continues to increase, auditors are facing more engagements involving exchange accounts, custodial wallets, cold wallets and decentralised transactions. These arrangements often require additional audit evidence beyond what would typically be obtained for conventional investments.
While the final guidance has not yet been released, existing ATO commentary and industry discussions suggest several key areas are likely to receive particular attention.
One of the most common compliance concerns is ensuring cryptocurrency is clearly held on behalf of the SMSF and not mixed with personal holdings.
Trustees should be able to demonstrate that exchange accounts and wallets are established and operated for the SMSF and that fund assets remain separate from personal investments. The ATO has previously identified ownership and separation of assets as important areas of focus.
Existence has emerged as one of the most significant audit challenges for cryptocurrency investments.
Where cryptocurrency is held directly by the SMSF in a private wallet, auditors must obtain sufficient appropriate evidence that the assets existed at balance date and were controlled by the fund. This may involve reviewing wallet addresses, blockchain records and evidence demonstrating ownership of the wallet.
Additional complexities arise where cryptocurrency is held through a custodian, such as a cryptocurrency exchange. In these circumstances, the auditor is typically relying on information produced by a third-party service organisation.
To place reliance on the custodian's controls, the auditor should obtain and assess an appropriate Type 2 assurance report covering the relevant period. Even where a Type 2 report is available, further substantive procedures are generally required to verify the accuracy of holding statements and confirm the existence of the underlying assets.
A significant challenge for the profession is that many cryptocurrency exchanges and custodians remain unaudited and do not provide independent assurance reports. As a result, auditors may be unable to obtain sufficient appropriate audit evidence through traditional means and may need to perform alternative procedures or consider the impact on the audit opinion.
Given the increasing prevalence of crypto assets in SMSFs, the industry is eagerly awaiting further ATO guidance on the evidence expected to support existence assertions in these circumstances.
As with all SMSF investments, cryptocurrency must be reported at market value.
Given the volatility of digital assets, auditors are likely to continue focusing on the quality and reliability of valuation evidence used at 30 June, including exchange pricing data and supporting documentation demonstrating how values were determined.
Comprehensive records remain critical.
Trustees should maintain documentation supporting acquisitions, disposals, transfers, wallet ownership, transaction histories and year-end holdings. Inadequate documentation can create significant audit challenges and may lead to compliance concerns.
Although the updated guidance is still under development, firms can take proactive steps by reviewing existing crypto SMSF files and ensuring documentation is sufficient to support:
Accountants may also wish to review where cryptocurrency assets are being held. Where assets are held through unaudited exchanges or custodians, obtaining sufficient appropriate audit evidence can be challenging and may result in additional audit procedures, increased costs or delays in finalising the audit.
Where commercially appropriate, trustees may wish to consider transferring their holdings to an audited platform before 30 June. Doing so may allow the auditor to place greater reliance on the year-end holding statement and the controls operating at the platform, particularly where an appropriate Type 2 assurance report is available.
Early planning can help avoid evidentiary issues arising after year-end when alternative audit procedures may be limited.
Addressing these issues before audit time will help reduce delays and minimise the risk of additional evidence requests.
The upcoming ATO guidance should provide greater consistency in how cryptocurrency holdings are audited across the SMSF sector. For accountants, auditors and trustees alike, clearer expectations around evidence gathering, ownership verification, existence testing and valuation methodologies will be a welcome development.
As digital assets continue to mature as an investment class, robust documentation and audit-ready records will remain the foundation of successful SMSF compliance.
This article is based on information released by the ATO through stakeholder consultation forums. The final guidance has not yet been released and may differ from matters discussed during consultation.