Valuation at Audit Time
The ATO has reminded SMSF auditors about their professional obligations when verifying asset values in financial statements. This follows two recent Supreme Court decisions in which SMSF auditors were held to have breached their duty of care when auditing SMSFs which later suffered investment losses.
In Cam & Bear Pty Ltd v McGoldrick  NSWCA 110 (reported at 2018 SNA 134 ), the NSW Court of Appeal ruled that an SMSF auditor breached his duty of care by failing to qualify the fund’s audit reports in relation to an unsecured loan which had been classified as “cash”.
Similarly, in Ryan Wealth Holdings Pty Ltd v Baumgartner  NSWSC 1502, the Court said the auditor should not have simply relied upon the investment manager’s representation that the policy valuation adopted for the carrying value of certain loans and investments was “reasonable in the light of the present circumstances”. Rather, the Court said the auditor should have taken steps to enquire further beyond that representation, or qualified the opinion recorded.
In light of these decisions, the ATO reminded SMSF auditors that assets are to be valued at market value and, while it’s not the auditor’s job to undertake a valuation, the ATO said SMSF auditors need to obtain sufficient appropriate audit evidence from SMSF trustees to verify the value of a fund’s investments.
If the auditor is unable to obtain sufficient verification that assets are valued at market value, the ATO said they should qualify the audit, lodge a contravention report and notify the trustees in a management letter or they face being referred to ASIC for possible disciplinary action.