Self-Managed Super Funds (SMSFs) are required to undergo an audit every year before an annual tax return can be lodged. The audit is conducted by an ASIC-registered auditor, whose job is to check that the financial statements are correct and that the fund complies with super laws. It's important to note that an audit is required even if no contributions or payments are made in the financial year.
One of the key responsibilities of an SMSF auditor is to check the valuation of the fund's assets. This includes ensuring that all assets have been valued at their market value when preparing the fund's accounts and statements, and that the valuation is based on objective and supportable data. It's important to note that the auditor's role is not to value the assets themselves, but to check that they have been valued correctly and to assess whether the basis for the valuation is appropriate given the nature of the asset.
It's the responsibility of the SMSF trustee to provide objective and supportable evidence to the auditor to support the valuation of a fund asset. This includes providing all relevant documents specifically requested by the auditor.
The Australian Taxation Office (ATO) has guidelines on how different types of SMSF assets should be valued for different types of events. The ATO's recommended approach is to use a market value approach for the majority of assets, and to use other methods such as the cost of replacement approach for specific assets. The ATO's guidelines are provided below.
Preparing SMSF financial accounts and statements
All assets must be valued at market value based on objective data on June 30 of the year you are lodging.
Listed securities (e.g. shares and managed funds)
These assets must be valued at their closing price on their approved stock exchange or market (e.g. the Australian Securities Exchange or ASX) on 30 June each year.
Unlisted securities (e.g. shares in private companies or units in unlisted trusts)
To determine market value, fund trustees (or an independent valuer) need to consider the value of the assets in the company or trust, and/or the amount paid for the unlisted security.
Real property
A valuation is not required each year, but it should be done if market conditions or other circumstances that may affect the property’s value have changed. For example, if renovations have been done to an investment property owned by the SMSF, or if the net income yield of a commercial property has changed. This valuation could be done via an independent appraisal or by researching recent selling prices of similar properties to use as comparable, objective valuation data.
The general rule of thumb used by the majority of SMSF auditors is that property investments held by a SMSF must be valued at least every three years
Calculating total superannuation balances
Market valuations need to be done on 30 June each year based on objective data.
Collectables and personal use assets when sold or transferred to a related party
The market value of these assets must be determined by a qualified independent valuer
Transfers of other assets (excluding collectables and personal use assets) between related or unrelated SMSF parties
All acquisitions and disposals must be made at market value based on objective data.
Determining the value of assets that support super pensions
The market value of these assets needs to be determined based on objective data on the day the pension is started or on 1 July during any year in which the pension is paid.