“Back in October 2020, the ATO said that where a kerbside valuation relied on comparable sales only but didn’t list the comparable sales, it wasn’t acceptable. So the comparable sales had to be supplied with that kerbside valuation,” said Ms Banton.

The ATO previously said that the valuation “must” stipulate the supporting data and include comparable sales, she explained.

“[The guidelines] now state that the kerbside valuation ‘should’ stipulate the supportable data and include the comparable sales if it is the sole source of evidence being relied upon to substantiate that valuation,” she noted.

“There is a subtle difference here between using the word ‘must’ and using the word ‘should’. So the ATO is taking a more practical approach, which is really reflecting what auditors have done in practise.”

Ms Banton explained that if there is a kerbside valuation that lists more than one source of evidence to justify the evidence of that asset, it doesn’t mean that if comparable sales are mentioned in that list that the comparable sales must be provided.

“So we have this softer and more subtle approach by the ATO which provides more certainty about whether comparable sales should be provided or not,” she stated.

“All of this also puts the final risk assessment of the valuation and the methodology used squarely in the auditors lap.”

The role of the auditor isn’t to value the fund’s assets, she stressed, but to check the valuation of the asset to ensure that the trustees have valued it at market value and that this is based on objective and supportable data.

“It’s all about the professional judgement of the auditor and ensuring that they have sufficient and appropriate audit evidence on which they can rely that the funds financials are fairly stated,” she said.

The ATO’s property valuation guidelines essentially provides two options, she explained.

“Where there is one source of evidence listed as a methodology for the valuation such as comparable sales, then the valuation should list the comparable sales. [On the other hand], where there are several sources listed in the valuation to substantiate the market valuation then comparable sales don’t necessarily need to be provided.”

“At the end of the day, it’s the auditor who is going to exercise their professional judgement and potentially ask for the comparable sales if they’re not provided where comparable sales is listed, certainly as the sole source of evidence and potentially also where there’s multiple sources listed in that valuation.”

Ms Banton warned that this could lead to some of the more risk adverse auditors using section 35C to mitigate their risk and prove that they’ve requested evidence.

Section 35C(2) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) states that if an auditor requests in writing a trustee of an SMSF to the auditor a document, each trustee of the entity must ensure that the document is given to the auditor within 14 days of the request being made.

“This isn’t something we’re intending to make part of ASF Audits’ procedures but from an industry point of view we may see a resurgence in the use of Section 35C [breaches],” she cautioned.

“The most common reason why SMSF auditors are referred to ASIC from the ATO is a lack of documentation in relation to market valuations. It’s a bit of a watch this space to see what developments are made.”