Valuation overview
Trustees of self-managed super funds (SMSFs) must:
- value all fund assets at market value when preparing the financial statements and accounts for their fund each year, for the income year 2012–13 and any later years of income. This is to comply with regulation 8.02B of the Superannuation Industry (Supervision) Regulations 1994 (SISR)
- if required, provide all relevant, objective and supportable evidence and documents, in accordance with our Valuation guidelines for self-managed super funds, to their approved SMSF auditor to substantiate the valuation, upon request in accordance with section 35C(2) of the SISA.
Your obligations
Approved SMSF auditors are responsible for:
- forming an opinion about whether the fund's assets have been reported at market value in its financial statements and accounts
- obtaining sufficient appropriate evidence to support their opinion of each asset.
In accordance with Auditing Standard ASA 500 Audit Evidence, you must:
- obtain sufficient appropriate evidence, either from the trustee or external sources, to form an opinion about whether the SMSF has complied with regulation 8.02B
- document the evidence and any judgments you make in your audit file.
Where you are unable to obtain sufficient appropriate evidence, you must:
- consider modifying the SMSF independent auditor's report (IAR)
- lodge an Auditor/actuary contravention report (ACR) when the reporting criteria is met.
It is not your role to:
- value fund assets
- determine the market value of assets.
Audit evidence to verify market value
Unlisted shares in companies, units in unit trusts and real property require extra attention when:
- verifying market value
- ensuring sufficient appropriate evidence is provided.
Unlisted shares in companies or units in unit trusts
Appropriate audit evidence for these asset classes to support the trustee(s) determination of market value may include:
- a qualified independent valuation of assets held in the company or unit trust
- 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
- any assumptions made
- a property valuation when 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.
For the financial statements of the company or unit trust to be reliable evidence of its market value, they must:
- be signed and audited
- value the company or trust's assets at market value (and not at cost).
Real property
An independent valuation is one type of sufficient appropriate audit evidence that may be used to support the trustee(s) determination of market value.
When valuing real property, trustees may consider using a qualified independent valuer. This is especially the case when the property represents a significant proportion of the fund’s value.
If trustees choose to do this, regulation 8.02B of the SISR does not require trustees to obtain an independent valuation from a qualified independent valuer each year. However, trustees must still consider if a previous valuation provided by a qualified independent valuer can be used to support the valuation of the asset each year.
Where a previous valuation provided by a qualified independent valuer is relied upon, other objective and supportable data is required to support the market value of a fund’s real property in the current year.
Other forms of acceptable evidence for substantiating the market value of real property include:
- independent appraisals from a real estate agent (or kerbside)
- a contract of sale if the purchase is recent and no events have occurred to the property that could materially impact its value since the purchase
- recent comparable sales results
- a rates notice if consistent with other evidence on valuation
- the net income yield of commercial properties (though not sufficient evidence on their own and only appropriate when tenants are unrelated).
Generally, a single item of evidence listed above will not be sufficient on its own unless the property has been recently purchased by the fund.
We recommend obtaining a variety of sources of evidence to support compliance with regulation 8.02B.
For example, real estate agent appraisals stating what the property is likely to sell for based on sales in the area, without listing details of those sales, would generally not on its own be sufficient appropriate evidence.
The evidence supplied should also support a market value for the property as close as possible to 30 June. This is especially important where the market is potentially volatile.
Reporting obligations when insufficient evidence is provided
When you are unable to obtain sufficient appropriate evidence verifying the market value of a fund asset, you should consider whether to:
- modify your opinion in the IAR
- lodge an ACR.
Lodging an ACR
If you cannot obtain sufficient appropriate evidence to verify the value of an SMSF's asset, you must lodge an ACR if you 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 you are unsure if this would be a reportable contravention, tell us about the lack of evidence at the ‘Other Regulatory information’ section (Section G) of the ACR.
Determining the contravention value for the ACR
If you cannot accurately determine the value of a regulation 8.02B of the SISR contravention, you can:
- report the asset value recorded in the fund’s financial statements as the maximum value of the contravention
- add a description stating, because you had insufficient evidence to ascertain the value of the contravention, you have reported the total asset value recorded in the fund’s financial statements as the maximum value of the contravention.
You may decide to report a different figure for the contravention. For example, you may decide to report the difference in the value reported in the financial statements and your own estimation of the market value of the asset. In this case, you should clearly state this in the event field, including:
- a description of the method used
- any assumptions made
- the data you relied on.