What SMSF auditors check in a valuation

What is the auditor's role in asset valuations?

To form an opinion on whether the fund's assets are reported at market value, and to obtain sufficient appropriate evidence for each asset. The ATO's guidance on verifying the market value of fund assets says this applies the auditing standard ASA 500 Audit Evidence: evidence can come from the trustee or from external sources, and the auditor documents the evidence and judgments in the audit file.

It is not the auditor's role to value fund assets or determine their market value. The trustee values the assets under regulation 8.02B of the SIS Regulations, and must give the auditor, on request, the relevant evidence and documents. The ATO's valuation guide adds that an approved SMSF auditor can seek an independent valuation of the fund's investments as part of the audit.

Valuations are not the only thing checked. The ATO's Division 296 notice also asks auditors to check that investment returns are allocated to members on a fair and reasonable basis (regulation 5.03).

What does the auditor check for each type of asset?

The ATO says unlisted shares, units in unit trusts and real property need extra attention when verifying market value. The table sets out what its auditor guidance and valuation guide list.

What makes evidence sufficient and appropriate?

The ATO's pages do not define the two words. Read together, its examples point to six features, in plain terms:

• It is objective and supportable. The valuation guide requires objective and supportable data, not an unexplained figure.
• It shows its working. An agent's appraisal that does not list the sales it relies on is generally not enough alone.
• It is current. For property, the evidence should support a value as close as possible to 30 June, especially in a volatile market.
• It covers more than one item where the asset needs it. For real property, a single item of evidence is generally not enough unless the fund bought recently.
• It is on a market value basis. Accounts that carry assets at cost are unlikely to be sufficient on their own.
• It can be explained to a third party. That is the ATO's own test for a fair and reasonable valuation.

This is our plain reading of the ATO's examples, not a definition from the ATO or the auditing standard. The auditor applies professional judgment to each fund.

What happens if the evidence is not enough?

The auditor must consider modifying the independent auditor's report and, where the criteria are met, lodge an auditor contravention report. The ATO says the auditor must lodge one if they cannot obtain sufficient appropriate evidence, believe the values may be misstated, and it is likely that a contravention that meets the reporting criteria has occurred, may be occurring or may occur. If the auditor cannot work out the value of the contravention, the ATO says the asset's value in the financial statements can be reported as its maximum value.

The ATO restated this in its Division 296 notice: auditors check that sufficient and appropriate evidence supports the market value of each fund asset, and that returns are allocated to members on a fair and reasonable basis. As reported, the ATO has also reviewed auditors where valuations were not updated and no contravention report was lodged. See the ATO's valuation campaign.

When must the trustee give the auditor the evidence?

When the auditor asks for it. Under section 35C(2) of the SIS Act, as the ATO describes it, trustees provide relevant, objective and supportable evidence and documents on request. The auditor's report is then due within 28 days after the trustee has provided all documents relevant to it (regulation 8.03).

That makes an incomplete valuation file a practical problem: the 28 days does not start until the documents are all in.

How does an independent valuation report help the audit?

It gives the auditor an independent valuation to test, instead of a figure from the trustees' own records. The ATO lists an independent valuation of the entity's assets as audit evidence for unlisted shares and units, and the valuation guide says an auditor may seek one.

Our report is built to be used as audit evidence. It states the valuation date, the market value basis, the method, the data and information relied on, the assumptions and the limitations, so the auditor can follow each step. Our valuer is a suitably qualified business valuer at Valuation Group, independent of the fund: never a member, trustee or related party of it.

What should accountants and administrators send the auditor?

• The valuation report for each unlisted share or unit holding
• The entity's financial statements, with assets at market value where available
• Property valuations the entity relies on, and any loan or lease agreements
• A short trustee note on why any earlier valuation still stands, which the ATO says trustees should document
• Closing prices, exit prices and balances at 30 June for everything else

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