SMSF asset valuations: what evidence the auditor looks for

The rule

Since the 2012–13 income year, the trustees of an SMSF have had to value all of the fund’s assets at market value when they prepare the fund’s accounts and statements (regulation 8.02B of the SIS Regulations). If the auditor asks, the trustees must give them the relevant, objective and supportable evidence behind each valuation, and the law gives the trustees 14 days to respond to a written request for documents.

The auditor’s job is to form an opinion on whether the assets are reported at market value, using enough appropriate evidence. The ATO is clear that it is not the auditor’s role to value the assets.

Real property

An independent valuation is one kind of evidence. The ATO says the trustees may want to use a qualified independent valuer, especially when the property is a large part of the fund. A new independent valuation isn’t required every year, but the trustees must consider whether an earlier one can still support the figure. If they rely on an earlier valuation, other objective data is needed for the current year.

The ATO lists other acceptable evidence for the market value of property:

• an independent appraisal from a real estate agent (sometimes called a kerbside valuation);
• the contract of sale, if the purchase is recent and nothing has happened to the property that could materially change its value;
• recent comparable sales results;
• a rates notice, if it is consistent with the other evidence;
• the net income yield of a commercial property, which isn’t enough on its own and is only appropriate when the tenants are unrelated.

Generally one item on its own won’t be enough unless the fund bought the property recently, and the ATO recommends several sources. An agent’s appraisal that gives a likely sale price without listing the sales it is based on would generally not be enough by itself.

Unlisted shares and units in a unit trust

These need extra attention. Evidence the ATO says may support the trustees’ figure includes:

• a qualified independent valuation of the assets the company or trust holds;
• how the directors or trustees arrived at the value: the data they relied on, the method and any assumptions;
• a property valuation, when property is the company’s or trust’s only asset;
• the date and price of the most recent sale of a share or unit between unrelated parties.

The company or trust’s own financial statements are reliable evidence only if they are signed and audited and value its assets at market value rather than at cost.

How close to 30 June

The evidence should support a market value as close as possible to 30 June. This matters most when the market for that asset could move a lot.

If the evidence isn’t enough

If the auditor can’t get enough appropriate evidence for an asset, they must consider changing their audit opinion, and they report to the ATO if they think the values may be wrong and the reporting criteria are met. Keeping the evidence together, dated and easy to find makes the audit smoother. What to do about a particular asset is a question for your accountant or auditor.

How SMSF Cockpit helps, and where it stops

The Annual Audit Checklist has a line in its document pack for asset valuations at 30 June, so you can mark it to do, gathered or sent, and the Document Register can note where each valuation is kept and when it was last reviewed. Your accountant can see both with view-only access.

What it doesn’t do: it doesn’t value an asset, suggest a value, or judge whether your evidence is enough. It doesn’t store the documents themselves, only where they are. Ask your accountant or auditor if you’re unsure what is enough for a particular asset.