The director of a corporate advisory firm has suggested the audit of an SMSF holding non-fungible tokens (NFTs) will not be straightforward and only a limited course of action will be available to the practitioner conducting the process.
“As far as how you audit [an NFT], it’s as difficult as [auditing] crypto essentially. The long and the short of it is you’d have to disclose it and disclaim it through a management letter, or if it’s material to the fund itself, then via essentially a qualification because who actually knows if any of [those assets] actually exist,” Vincents superannuation advisory director Brett Griffiths told delegates at the recent SMSF Auditors Association of Australia SMSF Conference 2022 on the Gold Coast.
Further, Griffiths pointed out auditors will have difficulty in valuing NFTs as well.
“[That’s] because some NFTs are unique, so there’s only one of them. Some are maybe one of 50. So if they’re one of 50, you would potentially have some sort of market that might be in existence somewhere, but if it’s a single NFT [you’re dealing with], there is no market [and] that’s where your challenge [will be],” he said.
“Once again, that’s where at the very least [you’ll have to] put the management letter in [regarding] the valuation because it’s impossible to actually determine.”
He took the opportunity to confirm NFTs cannot be classified as collectible or personal use assets by auditors.
“An NFT is actually a digital contract so it basically says [the SMSF owns] a digital file. [That means] an NFT in itself isn’t a collectible because it’s not the image that you own,” he noted.
“You actually have a contract linked via blockchain that says ‘yes I actually have a legal right to this image’. So an NFT itself is not a collectible.”
