2026 SMSF Audit Update: The Key Issues Trustees and Advisers Need to Know
The message from the IPA’s August 2026 SMSF Audit Update webinar was clear: a successful SMSF audit depends on much more than having documents on file. The evidence must be relevant, reliable and sufficient to support both the financial audit opinion and the compliance conclusion.
Presented by Shirley Schaefer, Partner at BDO, the webinar highlighted the issues most likely to attract attention during the 2026 audit cycle. These include auditor independence and file quality, annual asset valuations, pension underpayments, related-party arrangements, illegal early access and the practical impact of Division 296.
For trustees, accountants and advisers, the best response is to deal with these matters before the audit starts. Complete and supportable records will reduce delays, follow-up questions and the risk of a modified audit opinion or Auditor Contravention Report.
1. The ATO is increasing its scrutiny of SMSF auditors
The ATO’s 2026-27 compliance program places renewed emphasis on audit evidence, market valuations, audit quality and auditor obligations. The ATO reports that it completed close to 200 SMSF auditor reviews and audits during 2025-26 and referred 39 auditors to ASIC.
The webinar identified recurring deficiencies such as:
- independence breaches, including in-house and reciprocal audit arrangements;
- inadequate planning or poorly structured audit files;
- reliance on trustee representations without corroborating external evidence;
- failure to identify, qualify or report SIS contraventions;
- missing documents that the auditor says were relied upon; and
- unsigned financial statements, engagement letters, trustee representation letters or audit reports.
Independence is not satisfied merely because an auditor believes they can remain objective. Both independence of mind and the appearance of independence must be considered. Any actual or perceived threat should be identified, assessed and documented, together with any safeguards and the basis for concluding that the threat is acceptable.
An audit file should enable an experienced external auditor to understand what work was performed, what evidence was considered and how the auditor reached each conclusion. More documents do not automatically mean better evidence; the connection between the evidence and the audit conclusion must be clear.
Read the ATO’s 2026-27 SMSF auditor compliance focus
2. Valuation remains the dominant audit issue
The webinar’s most repeated word was “valuation” – and for good reason.
All SMSF assets must be reported at market value each year. There is no automatic rule allowing trustees to obtain a valuation only once every three years. A previous independent valuation may still be relevant, but current objective and supportable evidence is required to demonstrate why it remains appropriate at 30 June.
A trustee minute simply recording a value is not sufficient. The trustee should document:
- what information was obtained;
- how that information was assessed;
- why the selected valuation method is appropriate; and
- how the final market value was determined.
The supporting material should be supplied with the valuation assessment. It is the trustee’s responsibility to determine and support the value. The auditor’s role is to assess the valuation evidence, not to perform the valuation for the trustee.
Property valuations
For residential property, appropriate support may include an independent valuation or a detailed agent appraisal supported by genuinely comparable sales. A brief letter stating a figure without explaining the property, methodology or comparable evidence may not be enough.
For commercial property, the evidence may include an independent valuation, comparable market transactions, rental or yield information and an assessment of market movements since the last full valuation. Where a related party occupies the property, trustees should also obtain evidence that the rent is at market value.
Unlisted investments
Closely held companies and trusts require more than a unit certificate or a set of unsigned accounts. Depending on materiality, the auditor may need signed financial statements and tax returns, registry records, bank or loan statements and evidence supporting the underlying assets and liabilities.
Where an entity invests through another entity, the evidence may need to extend through each layer. If the underlying asset is property, expect requests for the same valuation evidence, title searches and lease documentation that would be required if the SMSF owned the property directly.
Even a nil valuation must be supported. Losses, insolvency or a winding-up process may justify a nil amount, but the audit file must still demonstrate why nil is the appropriate market value.
See the ATO’s guide to valuing SMSF assets
3. Modified audit opinions and the 2026 SMSF annual return
The independent auditor’s report has two distinct components:
- Part A – Financial audit: whether the financial report is fairly presented; and
- Part B – Compliance engagement: whether the trustees complied with the provisions listed in the report.
Insufficient evidence that is material but not pervasive generally results in a qualified Part A opinion. A pervasive misstatement may result in an adverse opinion, while a pervasive inability to obtain sufficient appropriate evidence may result in a disclaimer of opinion.
A limitation concerning the existence or value of an asset may also require a Part B qualification for regulation 8.02B. The auditor must consider the facts and exercise professional judgement; a Part A modification should not be viewed in isolation from the compliance engagement.
The 2026 SMSF annual return now makes the deductible and non-deductible audit fee labels H1 and H2 mandatory. Modified audit opinions – including qualified, adverse and disclaimer opinions – must also be correctly disclosed in the return. In addition, general interest charge and shortfall interest charge deductions are denied for income years beginning on or after 1 July 2025.
Read the ATO’s summary of the 2026 SAR audit-reporting changes
4. Auditor Contravention Reports require a documented decision
Not every compliance breach results in an Auditor Contravention Report (ACR), but every reportable provision must be tested against the ATO’s reporting criteria.
The criteria consider matters such as whether the fund meets the SMSF definition, whether it is a new fund, trustee behaviour, previous and unrectified breaches, missed statutory timeframes and financial thresholds. For example, the financial threshold test includes contraventions exceeding 5% of fund assets or $30,000, while a contravention exceeding $2,000 can trigger reporting for a fund less than 15 months old.
Where an ACR is not lodged, the audit file should clearly document why the identified contravention did not meet the reporting criteria. If a breach remains unrectified, it may need to be reported again in a later year.
Review the ATO’s ACR reporting criteria
5. Pension payments must be made correctly and on time
Minimum pension payments must be paid in cash by 30 June. Recording a year-end creditor or journal entry does not satisfy the payment requirement.
Where a small underpayment occurs, the ATO may allow the income stream to continue for tax purposes if the shortfall does not exceed one-twelfth of the annual minimum, arose from an honest error or circumstances outside the trustee’s control, is corrected as soon as practicable – generally within 28 days of becoming aware – and the trustee has not previously relied on the concession.
Shortfalls outside those parameters may require an application for the Commissioner’s discretion. The timing is important: if a pension has ceased, a replacement pension cannot simply be backdated to 1 July. This can affect exempt current pension income, and payments made before a valid new pension commences may be treated as lump sums rather than pension payments.
Read the ATO’s exception for minimum pension shortfalls
6. Related-party dealings, NALI/NALE and illegal early access remain high risk
Related-party arrangements continue to receive close attention. Trustees should be able to demonstrate that transactions are properly documented, conducted on commercial terms and followed in practice.
For a related-party lease, the audit evidence should address:
- whether a written lease exists;
- whether the rent is supported by an independent market assessment;
- whether the term, rent reviews and renewal arrangements are commercial; and
- whether rent has actually been paid in accordance with the agreement.
The audit should also consider whether assets were acquired at market value, whether members or related parties provided goods or services without appropriate payment, and whether any related-party LRBA complies with the relevant safe-harbour terms or is otherwise demonstrably arm’s length.
Illegal early access is another current ATO focus. An unexplained withdrawal should not automatically be treated as a simple error. The auditor will consider whether it is a loan, whether a condition of release was met and whether genuine documentation existed before the transaction occurred.
7. Division 296 places even more weight on the 30 June 2026 valuation
Division 296 applies from 1 July 2026. For 2026-27, an individual with a total super balance above the $3 million large super balance threshold may be liable for an additional 15% tax on the relevant proportion of taxable super earnings. Current law also applies an additional 10% tier to the relevant earnings component for balances above the $10 million very large super balance threshold.
An SMSF may elect to use a Division 296 CGT adjustment based on the market value of its CGT assets at 30 June 2026. The adjustment is used when calculating Division 296 fund earnings and does not reset the assets’ ordinary income-tax cost bases. The election applies across the relevant CGT assets and must be made by the due date for the fund’s 2026-27 return, so tailored tax advice is essential before the election is made.
The auditor’s fundamental role does not change, but the risk surrounding valuation increases. Trustees may have competing incentives to support a higher value for the transitional CGT adjustment or a lower value to remain below a Division 296 threshold. Auditors will therefore be alert to:
- unexplained changes in valuation methodology;
- unchanged values without current evidence;
- inappropriate use of market data from a different location or asset class;
- illiquid or thin markets with limited support; and
- the absence of independent reference points.
The practical message is simple: the 30 June 2026 valuation should be prepared carefully, consistently and with a clear evidence trail.
Read the ATO’s Division 296 guidance for SMSFs
8. Other changes from 1 July and August 2026
Several additional changes noted in the webinar will affect SMSF planning and administration:
- the general transfer balance cap increased from $2 million to $2.1 million on 1 July 2026, with proportional indexation applying to some members who have previously commenced a retirement-phase income stream;
- the concessional contributions cap increased to $32,500 from 1 July 2026;
- the non-concessional contributions cap increased to $130,000 from 1 July 2026; and
- for an LRBA entered into on or after 10 August 2026, real property can generally only be acquired if it meets the definition of business real property.
The LRBA change does not generally disturb arrangements entered into before 10 August 2026, refinancing of those existing arrangements, or a binding contract to acquire the property exchanged before that date. Advice should be obtained before signing or changing any borrowing arrangement.
See the ATO’s LRBA changes from 10 August 2026
Preparing for the 2026 SMSF audit
Before sending a fund for audit, trustees and advisers should make sure the file includes:
- signed financial statements and trustee minutes;
- current market-value evidence for every material asset;
- title, ownership and investment-existence evidence;
- complete lease and related-party transaction documentation;
- pension calculations and proof of cash payment before 30 June;
- contribution records and evidence of timing and acceptance;
- explanations and rectification evidence for any compliance issue; and
- signed trustee representations and prompt responses to audit queries.
Early preparation does not remove the auditor’s obligation to independently test the evidence. It does, however, make the audit more efficient and gives trustees time to address gaps before they become reporting issues.
TEAM SMSF AUDIT provides independent SMSF audit services to accountants and advisers. If you would like to discuss audit requirements or improve the quality of the documents submitted with your audit file, please get in touch.
This article is based on key issues discussed in the IPA SMSF Audit Update webinar held in August 2026, presented by Shirley Schaefer, Partner at BDO, and has been checked against ATO guidance current at 5 August 2026. It is general information only and should not be relied upon as legal, taxation or financial advice.
