I have a new SMSF audit client where I am doing the audit for 6 years from 2015 to 2020. The 2014 audit report was unqualified with no management letter points because everything was held in cash. In 2015 they loaned money to two third parties ($190K) with interest in excess of the prescribed ATO rates - short term loans which were repaid during 2016, but into the Accountant's Trust account. In 2016 another loan was made to a start-up which has since gone into liquidation and the money will not be recovered. Amount is $200k. Trustees realised that the money will not be recovered in 2017 financial year. Proper loan agreements were done for all loans. They will be closing the fund after all the audits are completed. There are 4 members, Accountant, his wife, his brother and the brother's partner. Brother's partner passed away in 2017. Accountant tells me he was disqualified in 2017 - from being a Trustee I presume, he said "it did not matter" when I asked him for more information. Questions:
Since we now know the money is gone, do I get the Trustees to put an Events Subsequent to Balance date from the 2015 year onwards in the financial statement, stating that the money was lost in 2017;
Do I get them to write-off the amount in the 2016 year as we know the money will not be recovered - in order to present a true and fair view;
Do I qualify my report in any way and in which year, and claim it as a bad debt in the tax return;
Do I put anything in the management letter;
Is there any breach to be reported and in which year.
Many thanks for some guidance.