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For all SMSFs, it is a regulatory requirement that assets be valued at their market value when preparing a fund’s annual accounts and financial statements. Additionally, SMSF auditors are obligated to gather sufficient and appropriate evidence to support the value of a fund’s investments.
To support SMSF trustees and auditors the Australian Tax Office (ATO) has published “Valuation guidelines for self-managed super funds” (QC 26343). Here’s an overview of the five key points and how the ATO’s guidelines align with an auditor’s obligations under the auditing standards as highlighted by SMSF Specialist Auditor Naomi Kewley from Peak Super Audits Pty Ltd, at her recent presentation at the SMSF Association’s SMSF Audit Day 2023.
1. Independent Valuers Not Mandatory
The ATO’s valuation guidelines clarify that engaging a qualified independent valuer isn’t mandatory when conducting a property valuation – that is, provided the valuation is based on objective and supportable data, it is valid.
This aligns with SIS Regulation 8.02B and auditing standards, making it a cost-effective approach for trustees.
2. When to a Seek Professional Valuation
The ATO recommends using an independent valuer when the asset represents a significant value of a fund, or its nature complicates the valuation.
When valuations are complex, professional expertise is beneficial and the ATO’s guidance provides a commonsense approach which is consistent with auditing standards. However, while heeding ATO guidelines, an auditor’s primary obligation under the auditing standards is to ensure robust evidence for asset valuations, regardless of the asset’s proportion in the fund.
3. Annual Revaluation: A Grey Area
ATO guidance seems to suggest that an annual revaluation may not be essential if a professional valuation was conducted in the previous year.
This appears to conflict with SIS Regulation 8.02B, which mandates annual revaluation, and auditing standards requiring evidence of current-year data. Despite any ambiguity, the trustee’s obligation for annual revaluation persists.
4. Rely on Multiple Data Sources
The ATO’s guidance suggests there is a need for multiple sources of data for valuation, such as comparable property values and independent appraisals. However, it is important to keep in mind that quantity does not outweigh quality when it comes to evidence.
An auditor can still meet their obligations under the auditing standards and accept a single piece of high quality evidence, provided they apply their professional judgement to conclude it is sufficient and appropriate evidence.
5. Importance of Supporting Data
Whether using a real estate agent or an online service, the ATO’s expectation is that a valuation should be backed by comparable sales data or other relevant information.
This aligns with auditing standards which require auditors to evaluate and scrutinize the quality of an expert’s conclusions and underlying data.
Conclusion
Although the ATO’s valuation material serves as a helpful guide, it does not override legislative requirements or auditing standards. Auditors must demonstrate that all evidence on file is sufficient and appropriate to support their opinion. Where ATO guidance and regulatory mandates diverge, the latter must be prioritized.
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