A specialist practitioner has reminded SMSF auditors of the responsibilities they have under their professional standards with regard to deciding whether the valuation of a fund asset provided is considered sufficient and appropriate evidence for audit purposes.
ARC Super director Ashley Course noted this fact is particularly important when reviewing SMSF property valuations.
Speaking at The Auditors Institute SMSF Auditors Day Sydney 2024 last Friday, Course told delegates: “[The auditing standards state] the auditor must have an understanding of the industry and the environment. So when I get a [real estate agent] appraisal for a business property out in the suburbs of Sydney that says the value is worth $1.2 million [because] trust me I’m a real estate agent, and then I see they’re producing a 15 per cent return, based on my understanding of 50 commercial properties in that suburb, a 15 per cent [return indicates] something’s wrong here.”
He pointed out an understanding of these types of assets in that location would indicate a standard return would be around 4 per cent or 5 per cent.
This was a real scenario, he said, and doubts over the return quoted prompted further investigation into the asset and the request for a valuer’s report.
“They got a valuer’s report and it came in at $3.6 million … and that valuer’s report provided sufficient and appropriate [evidence] to support the value,” he said.
According to Course, SMSF auditors must continually acknowledge there are two users of SMSF asset valuations to comprehend the significance of this type of data.
“Just remember there are two users [of this information] – there are the trustees and the members and the ATO. Now the trustees might not care if their $1.2 million property is really worth $3.6 [million]. They’ll care if it’s in their financials at $3.6 [million] instead of $1.2 [million],” he noted.
“But the ATO might care because [a higher asset value means] that fund may no longer be allowed to [accept] contributions, that fund may no longer be able to create new pensions [because there are total super balance] caps and they have other implications.”
