Alternative assessment can save on annual property asset valuation: BDO

“Trustees are required to ensure that all investments and assets are carried at market value each year, which necessitates an annual assessment of market value,” she said.

“There is a misconception that getting a property valuation done every three years will be sufficient. While Superannuation Industry Supervision (SIS) regulations require trustees to undertake annual valuations, an independent valuation by a third party may not be required every year as an assessment of relevant factors may be more appropriate.”

Ms Schaefer said in some situations, investments such as property may not experience significant changes in value from year to year.

“However, recent changes to superannuation regulations, the COVID-19 pandemic, and the current housing shortage, have influenced property values,” she warned.

“If you believe the value of your property has not changed in the last 12 months, you can seek confirmation from a property agent or valuer to support this sentiment. 

“As your auditor is not a property expert, if you do not provide the required information to ensure the valuation is appropriate, they may source this information themselves, which could increase the cost of the audit.”

More information about what the ATO requires for the value of a property to be assessed can be found on its website.

In addition to property investments, Ms Schaefer said unlisted investments or commodity investments, can also be more complex than SMSFs with more traditional investments.

“As SMSF trustees continue to search for a higher return on their investments, we have seen a recent surge in private equity investments including private trusts, companies, and private debt arrangements,” she said. 

However, she said that auditors need to consider two crucial aspects of these investments.

Firstly, auditors must determine whether the investment is connected or related to the SMSF, its members or relatives. 

“There are restrictions on the amount of SMSF assets that can be invested in any investment related to the trustee, members, or family members or entities under their control,” she said.

 “The auditor needs to establish the trustee’s connection to the investment and whether any related parties control the entity in which the SMSF has invested. Given these rules can be quite complex, we recommend discussing any potential investment with your accountant, adviser, or auditor to ensure you comply with the restrictions regarding related party investments.”

The second thing of which to be aware is that valuing these types of investments can be challenging as they are not listed and few transactions occur, making it difficult to determine market value.

“If the investment is in a private trust or company, the auditor will require copies of the relevant financial statements of the company or trust, as well as additional information regarding the valuation of any underlying assets such as property,” she said.

“We recommend confirming with your auditor the information they need to form an opinion on your assessment of the market value of these assets. A trustee minute documenting what you have assessed to form your opinion of value is always a good starting point. If the investment is a private debt arrangement, the auditor will also need to understand how you assessed the recoverability of the investment.”

The popularity of investing in gold, silver, platinum or other commodities has also increased in popularity and SMSFs can hold these types of investments either directly in physical bullion or through a bullion exchange or service.

Ms Schaefer said the main audit issue with this type of investment is not valuation but rather the existence of the investment.

“If an investment is held with a bullion exchange or service, a statement indicating the type, quantity and value of the commodities and confirming the investment is held in the name of the SMSF and trustees, is generally issued at the end of the financial year,” she said.

“However, if the bullion or commodity is held physically, you will need to provide sufficient documentation for the auditor to establish that the SMSF is the owner of the bullion which can usually be verified by invoices in the name of the SMSF and confirmation that the cash to purchase the bullion was drawn from the SMSF bank account.”

The bullion can also be verified through physical sighting by an independent person or through photographic evidence that is dated and supported by the original purchase documentation.