Key News Summary – ATO reminds  auditors of SMSFs, of the fund’s  SIS reg 8.02B obligation to have assets in their accounts at ‘market value’ and their obligation to verify this market value (though not to do their own valuation). Auditors must be accredited, by ASIC, to audit SMSFs, and the ATO points out that failing to verify ‘market value’ is the most common failing of auditors they report to ASIC.


On 18 Dec 2018, the ATO took put a post on its website, reminding SMSF auditors of their duties – at least in the sense of ensuring that they audit the ‘market value’ of assets, with the Superannuation Law requires. In truth the duties go further than this.

The ATO points to two recent cases, where SMSF auditors came to grief, through not doing their job properly:

  • Cam & Bear Pty Ltd v. McGoldrick [2018] NSWCA 110 – here the Court found that the SMSF auditor found negligent for failing to detect an unsecured loan was not ‘cash’ as recorded, with a value that was not the $950k amount recorded, because the borrower later became insolvent and was wound up) – see related Tax Technical Article; and
  • Ryan Wealth Holdings Pty Ltd v. Baumgartner [2018] 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.

The ATO noted that they high light an SMSF auditor’s obligation to verify asset values in the financial statements.

What the ATO doesn’t say, is that an SMSF has other duties to clients, other than just complying with the superannuation law. For instance, in the McGoldrick case, the balance sheet, quite misleadingly, described the asset as cash, which it was not. This facilitated the ‘face value’ adopted in the accounts, but what lay behind this, was that a ‘cash’ asset is usually secure enough, to be valued at ‘face value’. This was a case where the auditor was sued by the SMSF member, for not detecting the misdescription (and value) of an investment that collapsed.

Reverting, though, back to the ATO’s theme, they point out that under regulation 8.02B of the Superannuation Industry Supervision Regulations 1994 (SISR), assets must be valued at market value in the SMSF’s accounts and statements.  They remind SMSF auditors, that they need to obtain sufficient appropriate audit evidence from SMSF trustees to verify the value of a fund’s investments. It is not the auditor’s job to undertake a valuation but they should seek evidence that shows how the asset was valued, including the method used and the data relied upon.

If the auditor is unable to obtain sufficient verification that material assets are valued at market value, they should qualify the financial and compliance report sections of their SMSF Independent auditor’s report stating they have been unable to obtain sufficient appropriate audit evidence to verify the asset values. They should also lodge an Auditor/actuary contravention report for the contravention and notify the trustees in a management letter.

They make a point though, in saying that, of the SMSF auditors, that they referred to ASIC (to review their accreditation), the most common contravention, not identified or reported by auditors, was a breach of this ‘market value’ regulation 8.02B.

[ATO website: SMSF auditor valuation post; LTN 244, 18/12/18; Tax Month – December 2018]

FJM 24.1.19

CPD (comprehension) questions

  1. Do the SIS regs require an SMSF’s accounts to show the ‘market value’ of assets?
  2. What is that SIS reg?
  3. Of the SMSF auditors, who the ATO refers to ASIC (to review their accreditation, to audit SMSFs) what is their most frequent thing they failed to identify?
  4. What are the two cases, the ATO pointed to, as illustrations of this ‘market value’ point?
  5. What else did Cam & Bear Pty Ltd, get wrong?
  6. How much were they liable for?

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