All you need to know about auditing
Auditing is the objective examination and evaluation of a company’s financial statements. This is usually performed by an external third party but can also occur with internal parties as well as government entities.
Auditing is very important in the accounting world, and audits will take place by examining and verifying a company’s financial records to make sure that transactions are represented fairly and accurately.
The three main financial statements that will need to be prepared, checked and set to their relevant accounting standards for an audit are income statements, balance sheets ad cashflow statements.
These statements are prepared internally before auditing and are used to provide useful information to creditors, shareholders, customers, government entities, partners and suppliers.
Financial statements aim to capture the operating, financing and investing of a company through it’s recorded transactions. All of these statements are recorded and developed internally, which means there can be a high risk of fraudulent behaviour. Without standards and regulations in place, businesses can present themselves to be more profitable and successful than they are in reality. This is why auditing is so important. It ensures that a company is representing their financial position accurately and fairly.
There are three main types of audits. Internal, external and government.
Internal audits occur within a business itself. The audit is performed by an internal employee or company organisation. This particular type of audit is not made to be shared and distributed outside of the company, but rather prepared for management or for other internal stakeholders.
These audits can help with improving decision making withing a company by giving managers a good overview of the company’s financial position, as well as provide them with action items that can help improve internal controls. It is also a good opportunity for them to ensure that all laws and regulations are being followed.
The second type of auditing is external audits. This occurs when an external organisation performs the audit in order to provide an unbiased opinion that can sometimes be hard for internal staff to perform. These external audits are used to determine whether or not there are any errors or misstatements in a company’s financial statements.
External audits are really important when it comes to allowing various stakeholders to confidently make decisions surrounding the company that is being audited. This is an even more reliable source than an internal audit as the information represented is more honest ad there are no personal factors tied to the company like there may be if the audit was performed internally.
The last type of audit is a government audit. Government audits are performed by entities that relate to ensuring that financial statements have been prepared accurately to prevent the misrepresentation of the amount of taxable income a company has.
Misstating taxable income, whether it be a mistake or intentional, is considered tax fraud.
Once a government audit has occurred, it can result in no change to the tax return, a change that is accepted by the taxpayer or a change that is not accepted. If the latter option occurs, the issue will go through a legal process of mediation or appeal.
Auditing is an extremely important business process that needs to be regularly and thoroughly carried out in order to avoid any misrepresentation of a company’s financial situation. If you need any help or advice in regards to your company’s audit, please don’t hesitate to get in contact!
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One of the most powerful decisions you can make with your superannuation is whether to run your own self-managed super fund (SMSF) and whether to invest in property through it. Most people know it's possible to use super to buy property. Far fewer know how to do it well. The following seven tips are designed to help you make the right decisions. 1. You Can Borrow Money to Purchase Property in Superannuation. Don't have enough in your SMSF to buy an investment property outright? Since 2008, superannuation held in a self-managed super fund can be used to borrow money for property purchase. This is done through a 'limited recourse loan' using a Bare Trust as the Custodian entity. You can't borrow the total value of the property—typically it's up to 80% for residential properties and 60% for commercial properties, with the required deposit held in the SMSF as security. The SMSF then makes the loan repayments, with rental income received by the fund and property expenses paid by the fund. Importantly, if there is a default on the loan, your other assets in the SMSF are generally protected from standard debt recovery and bankruptcy proceedings. The lender only has recourse to the property itself. Upon completion of the loan repayment, ownership of the property transfers legally to the SMSF. 2. Follow These 8 Steps to Set Up Your SMSF Setting up an SMSF properly can be a complex process. It’s best to set up an SMSF with the assistance of a qualified superannuation advisor, like us! We can assist with both the initial setup and the ongoing management of your fund. There are eight core steps to SMSF set up: Select the appropriate structure and name Sign the trust deed that covers how your SMSF is set up and run (it can have up to four members) Establish a trust for the SMSF by investing assets into the fund Register your SMSF with the ATO Set up a separate bank account for your fund Submit your tax file number (and those of any other trustees) Obtain an electronic service address to receive employer contributions into your fund (if applicable) Roll over funds from your existing superannuation account into your SMSF 3. Keep a Liquidity Buffer If you're buying property through superannuation, make sure you plan to keep a liquidity buffer of cash and/or shares in your fund. Lenders will check for this before lending to you—it should be at least 10% of the value you intend to borrow. But beyond satisfying the bank, it's simply good risk management. Property is an illiquid asset. Having accessible funds in the SMSF means you're not caught short if repairs are needed, the property sits vacant, or an unexpected expense arises. Because superannuation is central to most Australians' retirement security, the government has carefully regulated what can and can't be done with it. They don't want people gambling their retirement away on poor investments or incorrectly using their superannuation fund. 4. Use the Rental Income to Repay Your Loan You cannot live in the property you purchase through your SMSF until after retirement. Most people purchase an investment property and use the rental income generated to repay the loan—which makes excellent financial sense. The key is selecting a property that rents easily and delivers a strong rental return. Your purchasing criteria may look a little different to buying a home you'd live in yourself. For example, proximity to public transport, local amenities, and average rental rates in the area matter more than personal preference. 5. Get It Right and Enjoy Significant Tax Efficiencies One of the most compelling reasons to invest in property through superannuation is the tax efficiency on offer. These benefits can significantly improve the long-term return of a property investment compared to holding it in your own name. Key tax benefits include: No capital gains tax or tax no yearly investment earnings if under super caps. Salary sacrifice advantages if you're sacrificing salary payments into super, loan repayments are effectively tax deductible. Capped tax on investment income—the maximum rate of tax on income after expenses is 15%. Any capital gains on investments held for 12 months or more, is taxed at 10%. Standard investors outside super can pay up to 47%. 6. Follow the Same Due Diligence Rules as Any Property Purchase Buying through superannuation doesn't mean relaxing your standards. If anything, the rules governing SMSFs mean you need to be more rigorous, not less. Property is likely one of the most significant financial decisions of your life. Research, not emotion, should drive your choices. The same rules apply whether you're buying in or out of super: Visit and compare multiple properties Know the values of similar properties in the same area Get all property checks performed by the right professionals Shop around for the right loan structure and lender Don't abandon good investor habits just because the structure is different. 7. Always Get Quality Professional Advice Nothing comes without risk—but the right advice significantly mitigates it. The key is understanding what you're getting yourself into: making informed decisions based on accurate data; keeping a diversified superannuation portfolio that doesn't place all your eggs in one basket; and not underestimating how complex buying property in superannuation can be. Sound Simple? It’s all in the details. If the above tips have made it sound straightforward, know that the detail is where the complexity lives. Getting professional advice from the start helps ensure you make the best possible decisions for your future. When selected according to rigorous property-purchasing criteria, property can be an excellent way to grow your superannuation and increase your chances of building a retirement fund that supports the lifestyle you want. Ready to Explore Property in Your SMSF? Whether you'd like to discuss whether an SMSF is right for you or need help setting one up, reach out to Ascent Accountants . If you want assistance managing the property within your fund, contact the Ascent Property Co team .
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