SMSF auditors should be cautious about what they are approving with respect to the valuation of fund assets considering the ATO has recently raised concerns about insufficient evidence, according to a specialist lawyer.
Referencing comments made by ATO superannuation employer obligations director Paul Delahunty, DBA Lawyers special counsel Bryce Figot noted the regulator was still seeing reports that relied on old valuations and he urged auditors to obtain documentation that demonstrates relevance to the financial year being audited when valuing assets.
“Remember the old three-year rule? Pretend you don’t know about that rule because it doesn’t exist anymore and if you follow it, it will definitely cause you problems. This is a big issue. People don’t get proper evidence for market valuation,” Figot told attendees at an online SMSF legal update last Friday.
“Here’s a practical question: what constitutes good evidence for an approved SMSF auditor to have on file in regards to accepting a valuation?
“It does not have to be a valuation report from a qualified independent valuer, but if you do have that, odds are that’s probably going to be good if the guts of it are well structured.
“Basically you want something that sets out a rational, and objectively explicable to a third party, process of valuing it and something that takes into account all relevant information.
“So comparable sales [or] a number of comparable sales. If it’s commercial property, include yield, but not just yield and consider other factors, such as kerbside valuations, and total up all of that and pick some rational approach to pick a value.”
In the event auditors are unable to obtain such information from their clients, he suggested they consider filing an auditor contravention report as the appropriate action to take.
“If the [clients] haven’t given you the evidence proving it, perhaps for commercial reasons, you might want to give them an opportunity to make further submissions,” he said.
“But you can also just lodge an auditor contravention report and I think you’d be well justified to do it. That would protect you and is part of properly discharging your professional obligations.”