Auditing, Documentation, Regulation, SMSF

Auditors in court over poor records

SMSF auditors ATO ASIC Documentation Asset valuations

Auditors are increasingly ending up in court for not properly documenting their reasons for approving asset valuations in the funds they audit.

SMSF auditors are ending up in court for failing to properly document their conclusions regarding asset valuations in their audit files, according to a senior industry professional.

“I recently spoke to an SMSF lawyer who defends auditors with the ATO and the Australian Securities and Investments Commission. He said when talking to the auditors about their files, they can clearly explain their reasons for a decision they made and had done the work, but it wasn’t documented on the file,” Tactical Super director Deanne Firth noted during a recent Institute of Financial Professionals Australia webinar.

“That is what is tripping them up with the ATO when they’re auditing a fund. There are many different things they could put in to substantiate that evidence, but it’s just not being put on file. It wasn’t that the valuations were wrong, it was there wasn’t evidence documented on the file to substantiate them.

“For both accountants and auditors, we need to understand objective and supportable evidence is required for valuing assets in SMSFs.”

Tactical Super director Jacob Kewley outlined the level of detail auditors should expect from trustees and added clear communication and preparation were often the best approaches to avoid regulatory and legal action.

“We always tell our clients that it’s better to ask us in advance, especially for tricky assets. For example, when valuing unlisted securities and unit trusts, we need to look at the consideration that was paid on the acquisition or disposal – if the units were issued or sold in the current year – to unrelated parties,” Kewley noted.

“If an expert valuation is [required for property, but] not available, we’d need evidence of how the market valuation was substantiated by the directors or the trustees, including supportable data on which they relied. It can’t just be an emotion or a thought bubble, it must be objective.

“Most auditors really come up short on detailing their thinking behind the most basic of conclusions and a lot of auditors do all the work, but document very little of it.”

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