Auditing, Investments, SMSF

Private company valuations unique

Unlisted assets Private companies Valuations SMSF Market value Audit evidence

Different techniques are required to overcome the difficulties of establishing the value of an investment by an SMSF in a private company.

Valuation of SMSF investments in unlisted assets such as private companies remains a challenge and auditors need to examine them using different techniques, a senior accounting executive has recommended.

Vincents superannuation advisory director Mailene Wheeler told delegates at the recent Auditors Institute SMSF Auditors Day 2024 in Sydney she has identified a starting point when valuing private companies.

“The first thing we always look at … is getting access to a most recent market sale of shares. So we reach out to the CFO (chief financial officer) and the directors of the unlisted company and ask has there been a recent share transfer or share sale or a capital raising that we can use to support the market value at 30 June,” Wheeler shared.

She said if this type of information is unavailable, then auditors will have to examine the nature and activities of the company in question further.

“If they haven’t got a share price that they can give us or if there hasn’t been a capital raising, we have to look at the asset and [ask] what is happening in this company.

“So we’re looking at net earnings, we’re looking at [whether the company has changed its trading activity], was it a start-up [and] has it grown, [and] can we ask an accountant to give us a valuation.”

Further, she said auditors must assess the characteristics of the company for compliance factors other than valuation purposes, such as the involvement of related parties, and warned this additional step could be difficult.

“I’ve recently, in the last three weeks, been experiencing a lot of pushback from not just the SMSF trustees, but also the people that they have invested with who are [saying] why is the SMSF auditor asking for this, why do you want more than just financial statements, why are you asking me if there are any loans to members or if there has been any financial accommodation, why are you asking me for the most recent share price,” she said.

“So it is really, really, really challenging for all of us in the room to get their valuations, but it is important that you’ve got sufficient audit evidence for your file.”

She pointed out trustee education is a key factor in improving these processes.

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