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I received a 4 years of SMSF Audit from an Accountant in Public Practice. SMSF is in Pension Phase. Income tax refund (franking Credits) not showing in Balance Sheet. 4 years total refund is around $200,000. I questioned the accountant and he tells me that its not compulsory to show(accrue) this refund until it is received from ATO. That's what he has been advised by SMSF team of ATO and as per the accountant ATO told him to refer SMSF Instructions Section I Item 17, SMSF Net Assets $100m or less. Prior years Financials prepared on the same basis and previous Auditor has provided Unqualified Audit Reports.
Am I missing something?
I believe that the franking credits should be taken up in the accounts each year. In the same way you would take up the tax liability not yet paid. Consider if a member was going to get paid out on the basis of the balance sheet ( eg marriage breakdown)
their share of the value would be undervalued by the share of franking credits.
this often happens and the auditor doesn't find out until a year later. the auditor could ne held liable by the member who left the fund based on the accounts you audited.
At least I would want a detailed note to each years accounts clearly itemising the expected franking credits. It appears to be a reportable breach which should be clearly noted in a separate paragraph in the audit report detailing amounts. I would issue a contravention report and put the ATO on record.