What is in an SMSF valuation report?
A report has nine parts, in the order below, and each answers a question the trustees, the accountant or the auditor will ask.
- Purpose, valuation date and who may rely on it
- The interest valued and the entity
- The valuer's independence
- The information relied on
- The method and why it was chosen
- The calculation
- The conclusion of value
- Assumptions and limits
- The representation letter and sign-off
What does the report say about purpose, date and reliance?
It states why the valuation was prepared, the date it speaks to and who may rely on it. For an annual valuation the purpose is usually the 30 June market value for the fund's accounts and audit. For a transfer it is the market value at the date of the transfer. The users named are the trustees and the fund's accountant and auditor, and the report may not be used for another purpose.
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How does the report identify the interest and the valuer?
It describes the entity, the units or shares valued, the rights attached to them and the number the fund holds. It then states that the valuer is independent of the fund: never a member, trustee or related party of it. The work is done by a suitably qualified business valuer at Valuation Group.
What information and method does the report set out?
It lists the documents relied on, such as the financial statements, the trust deed or constitution, the unit or share register, loan agreements and any property valuation. It then names the method, for example net assets for an investment entity, and says why that method suits the holding. How we value explains each method.
How does the report show the entity's assets and liabilities?
It lists each asset and liability at the valuation date with the value given to it and the source of that value. A bank balance comes from a statement, a listed investment is taken at its closing price on 30 June, and a property is taken at the figure in a valuation by a registered or certified property valuer. Each line shows its source, so a reader can trace it.
What does the calculation look like?
The excerpt below is fictional. It shows the net assets method for a unit trust that owns one property, with the property figure taken from a property valuer's valuation. A real report shows more detail, but the steps are the same.
The fund holds 40% of the units, so its holding is 40% of net assets: $464,000. This simplified example applies no discount. For real units, whether a discount for a minority holding or limited marketability applies depends on the trust deed and the facts, and the report sets out the reasoning.
What can a trustee or accountant check in the report?
- That the valuation date is the date the fund needs, such as 30 June or the date of a transfer
- That the interest valued matches the unit or share register and the number the fund holds
- That each figure traces to a document or a named source
- That the independence statement and the valuer's role are stated
- That the stated purpose and the limits fit how the report will be used
What are the conclusion, assumptions and limits?
The conclusion states the market value at the valuation date in one place. The report then sets out the assumptions made, the limits of the work and the information supplied. It is not an audit of the entity, and it is not legal, taxation, investment or financial product advice. A report prepared for commercial purposes is not a court expert report, because court or tribunal work is a separate engagement with its own fee.
What happens before the report is final?
Before the final report, the client signs a representation letter confirming the information supplied. The report lists that information, so the file shows what the valuation rests on.
How does an auditor use the report?
The auditor decides what evidence is sufficient. The ATO says auditors must check that sufficient appropriate evidence supports the market value reported for each fund asset (ATO on Division 296 and SMSF audits). The report puts the value, the method and the evidence in one place for that check, and we are happy to answer an auditor's questions about it.