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  • SMSF auditors verifying market values of unlisted shares or units in trusts

    Approved self-managed super fund (SMSF) auditors are responsible for verifying the market values of unlisted shares in companies or units in trusts in an SMSF. The SMSF auditor needs to obtain evidence to support the determined 'market value'. Where there is insufficient evidence, they must consider modifying the Independent Auditor's Report and lodge an Auditor/actuary Contravention Report (ACR) where the reporting criteria is met.

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    Audit evidence to verify market value

    Self-managed super funds (SMSFs) are not required to prepare general purpose financial reports (GPFR). They do not need to comply with the accounting standards issued by the Australian Accounting Standards Board (AASB).

    Instead SMSFs can prepare special purpose financial reports (SPFR) in accordance with accounting policies that have been agreed upon between the entity and the users of those financial statements. However, under regulation 8.02B of the Superannuation Industry (Supervision) Regulations 1994 (SISR), assets must be valued at 'market value' as defined in section 10(1) of the Superannuation Industry (Supervision) Act 1993 (SISA).

    It is not the role of the auditor to value assets. Their role is to check that assets have been reported at market value by the trustee. They also assess and document whether the basis is appropriate given the nature of the asset.

    The auditor’s responsibility is to obtain sufficient appropriate audit evidence to support the trustees’ rationale for determining the market value of each asset (or class of asset).

    For unlisted shares and units, this can include:

    • an independent expert valuation of assets held in the company or unit trust. If this is not available, evidence of how the market valuation was substantiated by the directors or trustees including objective and supportable data on which they relied, the valuation method they used and any assumptions made
    • a property valuation where property is the only asset of the company or unit trust
    • the date and price of the most recent sale and purchase of a share or unit between unrelated parties.

    Signed audited financial statements of the company or unit trust are unlikely to be sufficient on their own for the purposes of establishing whether the fund's investment is reported at market value if the assets have been valued at cost in those financial statements.

    Auditor’s obligations if insufficient evidence

    Under regulation 8.02B of the Superannuation Industry Supervision Regulations 1994 (SISR), SMSF trustees are required to value fund assets at market value in the SMSF’s financial statements.

    Where the auditor is unable to obtain sufficient appropriate audit evidence that the assets are valued at market value, the auditor must consider modification of the Independent Auditor’s Report as follows:

    • the auditor should issue a qualified opinion if the auditor believes this could have a material but not pervasive impact on the fund
    • the auditor should issue a disclaimer of opinion if the auditor believes this could have a material and pervasive impact on the fund.

    If however the auditor is able to obtain sufficient appropriate audit evidence that the assets are not valued at market value, the auditor will consider modification of the Independent Auditor’s Report as follows:

    • the auditor should issue a qualified opinion if the auditor concludes it has a material but not pervasive impact on the fund
    • the auditor should issue an adverse opinion if the auditor concludes it has a material and pervasive impact on the fund.

    Without sufficient appropriate evidence to verify the value of the investment, the auditor must use their professional judgement to determine whether an Auditor/actuary Contravention Report (ACR) should also be lodged.

    If the auditor believes that the values may be misstated, such that they would meet the reporting criteria, they should lodge an ACR.  If they are unsure that this would constitute a reportable contravention, they can add information to Section G, the ‘Other information’ section of the ACR.

    Determining the value of the contravention for ACR

    If the SMSF auditor cannot determine the value of the contravention with any reasonable degree of accuracy, they can report the asset value recorded in the fund’s financial statements as the maximum value of the contravention in the event field of the ACR.

    They should also add a description stating that, because they had insufficient evidence to ascertain the value of contravention, they have reported the total asset value recorded in the fund’s financial statements as the maximum value of the contravention.

    The auditor may decide to report a different figure for the contravention. For example, they may decide to report the difference in the value reported in the financial statements and their own estimation of the market value of the asset. In this case, they should clearly state this in the event field, including a description of the method used, any assumptions made and the data they relied on.

    What SMSF trustees can expect if an ACR is lodged

    We take a risk assessment approach in dealing with ACRs. We look at the type and number of contraventions reported and the amounts involved. We also look at any further information provided by the SMSF auditor in the events field. Where an ACR is lodged, the SMSF trustee will receive a letter from us and, for higher risk contraventions, an audit or review case may commence.

    Where an SMSF trustee is asked to rectify a section 8.02B contravention, we would expect the trustee to attempt to get the asset valued at market value. If they are finding this too difficult, they should explain the issue to us. They can also seek SMSF specific advice. In some cases, the trustee may decide to sell the asset. The trustee should provide information about any rectification action to their SMSF auditor to assist in completing the following year’s SMSF audit.

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    Last modified: 28 Aug 2019QC 60021