Verifying asset values in a SMSF.

ATO issues fresh warning on valuations after major cases.

           

 

The ATO has reminded SMSF auditors on their obligations around verifying asset values in the financial statements of SMSFs following the outcome of two cases this year.

In an online update, the ATO stated that under 8.02B of the Superannuation Industry (Supervision) Regulations 1994 (SISR), assets must be valued at market value in the SMSF’s accounts and statements. 

“Two recent cases involving SMSF auditors, Cam & Bear Pty Ltd v McGoldrick [2018] NSWCA 110 and Ryan Wealth Holdings Pty Ltd v Baumgartner [2018] NSWSC 1502, [have] highlighted the obligation of SMSF auditors to verify asset values in the financial statements,” the ATO stated.

The two court cases held SMSF auditors responsible for investment losses. The Cam & Bear Pty Ltd v McGoldrick case was a decision by the NSW Court of Appeal, which ruled that the auditor was negligent in failing to make proper enquiries as to the recoverability of certain investments held in the fund and report back to the trustee.

The second, more recent case, Ryan Wealth Holdings Pty Ltd v Baumgartner, similarly found that the auditor’s failure to detect irregularities in the fund over a number of years meant the SMSF trustee was unable to redeem money lost on a series of unsecured loans.

The ATO stressed that SMSF auditors need to obtain sufficient appropriate audit evidence from SMSF trustees to verify the value of a fund’s investments.

While the ATO said that it is not the auditor’s job to undertake a valuation, it said that they should seek evidence that shows how the asset was valued, including the method used and the data relied upon.

“If the auditor is unable to obtain sufficient verification that material assets are valued at market value, they should qualify the financial and compliance report sections of their SMSF independent auditor’s report stating they have been unable to obtain sufficient appropriate audit evidence to verify the asset values,” the tax office said.

They should also lodge an auditor or actuary contravention report for the contravention and notify the trustees in a management letter, the ATO stated.

The ATO noted that the most common contravention not identified or reported by auditors who were referred to ASIC this year was regulation 8.02B.

SuperConcepts executive manager of SMSF technical and private wealth Graeme Colley previously told SMSF Adviser that where there is limited evidence supplied to the auditor about assets, especially more complex ones, then the fund could be hit with a contravention.

“Next year, advisers and trustees will be required to provide more thorough and comprehensive information to auditors so that they’re satisfied that the fund has made an investment which is recoverable,” Mr Colley said.

“That’s really important, because if the auditor is not satisfied or they can’t see that it’s recoverable, then they’ll likely qualify the accounts of the fund, fill out a contravention report and let the ATO work out whether the investment is recoverable under the operation of the SIS legislation.”

 

Miranda Brownlee
19 December 2018
smsfadviser.com

More Articles

Why crypto treads an uncertain path through tax minefield

The taxation of digital assets used for lending and borrowing would benefit from clear-sighted...

Read full article

Wheat Production by Country

Check out the countries that produce the most...

Read full article

Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’

Following years of mixed messaging, Labor has bowed to economic pressure and announced changes to its stage...

Read full article

Investment and economic outlook, January 2024

Region-by-region economic outlook and latest forecasts for investment returns. . What might shipping...

Read full article

Quarterly reporting regime means communication now paramount: expert

Communication between SMSF trustees, accountants and advisers is more crucial than ever with the quarterly...

Read full article

Four timeless principles for investing success

Investing success can mean different things to different people. Being clear on what success means for you is...

Read full article

Plan now to take advantage of 5-year carry forward rule: expert

This is the last year that the five-year catch-up contribution rules for concessional contributions can be...

Read full article

Super literacy low for cash-strapped

Financial literacy around superannuation is poor for many lower-income people, who still question why they...

Read full article

Sofie Korac is an Authorised Representative (No. 400164) of Prudentia Financial Planning Pty Ltd, AFSL 544118 and a member of the Association of Financial Advisers.

Financial Advice Sydney and the North Shore Office based in Gordon NSW

Financial Services Guide - Disclaimer & Privacy Policy

^