Valuing the investments of SMSFs to meet the requirements of all stakeholders who have an interest in the fund is challenging. A conscientious trustee or adviser can be left wondering whether what they see in the fund accounts is accurate for their purpose.

The first place for a trustee to look when valuing the assets of the fund for the purposes of calculating a member’s balance or benefit payment is the fund’s trust deed. Sometimes when determining a member’s balance the deed may indicate when fund accounts are required to be prepared and provide instructions on when and how the income of the fund is to be determined and allocated to a member’s account.

The dilemma for the fund trustees, in cases where the fund’s governing rules and the legislation are in conflict, is to ensure there is an overriding provision in the deed that requires the fund to satisfy the provisions of SISA. Failing to do so may result in a breach of the minimum benefit protection standards in SIS Reg 5.04.

The SISA and Regulations, section 35B(2) and regulation 8.02B requires that from 1 July 2012 accounts and statements of the fund must be prepared on a market value basis from records kept in Australia. The accounts and statements include a statement of financial performance and operating statement for the fund for the relevant financial year. In addition, market value is required to be used for specific operating standards of the SISA.

For SMSFs, market value is required to be used prior to the acquisition of an in-house asset under Part 8 of SISA and Division 13.3A of the SIS Regulations and at the end of each financial year to ensure the in-house asset rules are met. Market value is also required when an asset is being acquired from a related party under section 66 and for purposes of limited recourse borrowing under section 67.

The trustee of an SMSF is required to appoint an auditor to undertake the audit of the fund’s accounts and statements in accordance with section 35C of SISA. The audit for these purposes is divided into two parts, the financial report and the compliance report. The trustee’s responsibility is to ensure that accounts and statements are prepared as required by the legislation on a market value basis.

The role of the auditor is to see that the accounts and statements are in accordance with the provisions of SISA and reflect the market value of the fund’s assets. To assist in the audit of the fund the auditor must undertake the audit in accordance with the Australian Audit Standards and Guidance Statements and guidelines provided by the ATO.

The auditor uses the audit standards and other guidelines in deciding whether the process used to value an asset disclosed in the accounts and statements is correct. From this they are able to obtain an understanding of the trustees’ rationale for selecting the valuation method. By exercising their professional judgement they can assess whether the method employed is appropriate.

ASA 530 sets out the standard applying to the selection of items for sampling and testing. In the case of an SMSF it is possible that the auditor may use a highly substantive method of testing. Rather than sample the assets of the fund they may test all of the fund’s assets where the fund has a small number.

Ultimately, when valuing the assets of an SMSF for various purposes, it’s horses for courses.

Graeme Colley, director technical and professional standards, SPAA