Shelley Banton, head of education at ASF Audits, said that with market valuations now one of the emerging risk areas, SMSF advisers should be aware that auditors will be vigilant when reviewing documentation and valuations.
“The true impact of incorrect market valuations can quickly impact SMSF compliance with far-reaching implications for trustees,” Banton said.
“Near enough is not good enough when valuing SMSF assets at market value according to r8.02B SISR, which requires SMSF trustees to value all assets at market value when preparing financial statements.”
She said that through its market valuation campaign earlier this year, the ATO identified a high-risk category of 16,500 SMSFs that reported the same market value of assets for at least three income years.
“The ATO reminded SMSFs with more complex assets, such as residential and commercial properties and unlisted investments in companies and trusts, to report assets at market value every year,” she said.
“Otherwise, they may be subject to additional tax and administrative penalties.”
Banton said the challenge for trustees and auditors is to get valuations correct as the impact of incorrect market valuations can have financial and operational repercussions for an SMSF.
“SMSF auditors are equally responsible for meeting their professional obligations under the auditing standards as the SIS legislation,” she said.
These standards include ASA 500, which states that audit evidence is relevant for market valuations as it requires auditors to design appropriate procedures to obtain sufficient audit evidence.
“ASA 540 deals with auditing accounting estimates, including fair value accounting estimates and related disclosures, and requires auditors to assess whether the trustee’s estimates are reasonable and whether there is a risk of material misstatement in the financial statements,” Banton said.
“SMSF trustees are not typically experts or independent valuers. To that extent, auditors must ensure that trustee estimates have been prepared appropriately by reviewing factors such as whether they have used a reputable data source, their assumptions, trustee bias and subsequent events that can affect values.”
Auditors need to understand how trustees came to a valuation by evaluating the logic, information and evidence, Banton added.
“The auditing standards do not require SMSF auditors to obtain an independent annual valuation. They need sufficient appropriate audit evidence on file that substantiates the methodology used by trustees to value assets,” she said.
“A breach of r8.02B comes with administrative penalties. While not explicitly mentioned in r8.02B, it is a breach of the operating standards, attracting 20 penalty units currently worth $6,260 per trustee.”
Furthermore, Banton said where a fund has a corporate trustee, the penalty applies once, whereas it applies separately to each individual trustee.
