Private company valuations tricky

Private company valuations

A specialist practitioner has identified valuing SMSF holdings in private companies and unlisted unit trust as being a problematic area for auditors with regard to the annual returns of funds.

The valuations of SMSF holdings in a private company and unlisted unit trust is a current area of concern for auditors due to the inexact nature of the process involved, a specialist practitioner has said.

Tactical Super director Deanne Firth noted the situation can and probably would lead to an adverse result with regard to the fund’s annual return.

“[With] a lot of [private] companies we don’t know what their value is [and] it’s easier when they’re traded … [It means] if you’ve got an [investment in an] unlisted private company, you’re going to end up with a Part A qualification [from the auditor] on your annual return,” Firth told delegates at the recent Chartered Accountants Australia and New Zealand National SMSF Conference Online 2020.

Further, she pointed out this outcome was in all likelihood unavoidable.

“It’s not necessarily anything that the trustees can do [because] there’s enough concern about what the valuation [is and] I feel auditors can’t sign off on that regulation 8.02B [of the Superannuation Industry (Supervision) Regulations],” she noted.

According to Firth, recent legal cases that have put the responsibility of SMSF auditors under greater scrutiny have led to practitioners having heightened sensitivity about the private company valuations.

“It’s [a matter of] protecting ourselves after those recent court cases,” she said.

“[So] this year’s really tough [for SMSFs with holdings in] either those private companies or unlisted unit trusts that are not widely held.”

With further regard to the annual return, she identified additional areas requiring specific documentation for auditor approval, in particular, certain COVID-19-related practices.

“For example, rent relief. We definitely need to see a letter from the tenant to the SMSF, even if they’re a related party, saying we’re asking for rent relief and [we will also need to see] a response back from the super fund,” she advised.

“[The tenant] can’t just stop paying rent without having something in writing [approving that course of action].”

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