Speaking to SMSF Adviser, ASF Audits head of education Shelley Banton said one of the major SMSF audit issues continues to be property valuations.
Ms Banton said that under the auditing requirements, SMSF auditors need to be able to see comparable sales results for properties.
The ATO has made it clear in its guidance that real estate appraisals that state 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 and appropriate evidence.
“As auditors, we’re supposed to be assessing the methodology that’s being used to value an asset. In the case of a kerbside valuation that just states that they’ve looked at comparable properties and gives a valuation but the comparable properties aren’t listed there, we can’t actually assess that methodology in line with the auditing standards,” Ms Banton explained.
“Therefore how can we actually state or sign off on the fact that those assets are fairly stated.”
With few kerbside valuations coming through that include these comparable sales, Ms Banton said this is resulting in a lot of issues and hold-ups in audits at the moment.
“We then have to go back and ask for more information and ask for those comparable sales to be included,” said Ms Banton.
“In some cases, and while it’s not widespread yet, I’ve heard of real estate agents starting to charge for this service.”
Ms Banton said it might therefore be cheaper in some cases to obtain an online valuation that will have those comparable sales included.
Market valuations for unrelated entities and unrelated unit trusts and companies also continue to be an issue, she said.
“It can sometimes be very hard to get that information, if we do get it, we may only get draft financial statements, we may not get signed financial statements,” said Ms Banton.
“It makes it even more difficult when the accountant who’s preparing the super fund doesn’t prepare the accounts for that unrelated entity. You’re trying to get that information from a fourth party [and] there’s no requirement from that accountant who’s providing those financials to provide it to the SMSF accountant.”
While the article mentions market valuations for unrelated private companies & unit trusts, it only touches on the difficulty of obtaining financial statements, not the bigger compliance issue of market value of shares or units in such entities. The underlying investments are almost exclusively never valued, and financial statements are at always at historic cost.
Where say, a property syndicate/unit trust does own property, the issues are often who will pay for such a valuation, and indeed, will the promoter co-operate with such a process? Trusts or companies that are also operating businesses, require a valuation of goodwill by a qualified person e.g. an accountant, and practically impossible to arrange. The ATO say they will accept recent ams-length share/unit sales as evidence of market value, but often there aren’t any.
It’s also difficult where you have a number of SMSF investors in such an entity, and one auditor or administrator is telling their client they need such information, but other auditors are not. You end up being scoffed at as being over-zealous.
There are still auditors out there running the gauntlet of valuing such assets, making it difficult for all concerned.
Biggest problem is the perception that a valuation every three years will suffice. The bulk of the SMSF audit industry has allowed administrators & trustees to get away with a valuation every three years plus a declaration tmfor each of the next two years.
No formal valuation has ever been required but thee legislation is clear, trustees must value every investment every year. Not sure how any trustee can state Residential property valued 2 years ago is worth the same today as property prices have boomed. Commercial property valuations are more problematic particularly with retail, hospitality & office valuations. They are all over the place since Covid..
If you want to have an SMSF then comply with the LAW else auditors will qualify.
The accountants are generally the issue here ignoring the requirements. Lot of last and disrespectful accountants out there.