SMSF auditors have been warned to be more cautious around their treatment of the value of unlisted assets within a fund when preparing financial and compliance statements.
SuperConcepts SMSF technical and education services general manager Peter Burgess said two landmark cases in 2018 in which auditors were successfully sued over their assessment of the classification and recoverability of unlisted assets would continue to have an impact into 2019.
Burgess made the comments as part of a recent webinar in which he referenced the Cam & Bear and Baumgartner cases, which he said should make auditors more conservative when dealing with unlisted assets.
“In both cases, the trustees successfully sued the auditor for failing to pick up irregularities in the fund’s financial statements related to unlisted assets and did not alert the trustees to issues in the fund,” he noted.
He pointed out it was not the auditor’s job to undertake a valuation of the assets, but they are required to seek evidence that shows how the asset was valued, including the method used and the data relied upon.
“The cases highlighted the obligation of SMSF auditors to verify asset values in the financial statements and, as a result, the valuation of assets and assessing the recoverability of fund assets has become a higher-risk area for auditors who are more likely to be cautious when reviewing documentation and valuations,” he said.
He noted there was often tension between the valuation of unlisted investments and how an auditor can form an opinion about the value and recoverability of the asset, particularly where it was not always possible for trustees to provide valuation information.
According to Burgess, in these cases auditors are now more likely to issue qualified reports, but they need to be able to explain to trustees why they have done so.
“If an auditor cannot form an opinion about the financial position of a fund, or disagrees with a position, they can issue a qualified report, but the reasons need to be communicated to trustees,” he said.