What’s the Value of an Unlisted Asset?

Shelley Banton
Shelley Banton
February 18, 2019
market value of unlisted asset

One of the inherent problems in trying to obtain market value for fund investments in entities is that they have no statutory requirement to prepare their accounts on market basis  

Two recent cases[1] involving SMSF auditors have focused industry attention on the obligation of SMSF auditors to verify assets valued at market value. The headaches start, however, when a fund invests in unlisted assets, such as unlisted companies and trusts.

Regulation 8.02B

The requirement to value fund assets at market value is enshrined in Regulation 8.02B of the Superannuation Industry Supervision Regulations 1994 (SISR). It was introduced in 2013 as a result of SMSF trustees:

  1. not revaluing assets at the commencement of a pension (essentially to manipulate the minimum payment)
  2. leaving some assets at cost (to avoid exceeding the 5% in-house asset limit)

Initially, R8.02B was a non-reportable contravention that was quietly made reportable during 2014. As a result, some SMSF advisers and their clients were caught out with compliance issues at the end of the 2015 financial year.

Regardless, SMSF auditors have always been required to verify the valuation of assets, but the importance of r8.02B has recently doubled down with the introduction of the transfer balance cap in 2017/18.

Documentation Issues

The challenge facing SMSF advisers is obtaining sufficient and appropriate evidence that proves the market value of the unlisted asset.  Below are some examples of documentation an auditor may require for an unlisted asset:

  • Signed financial statements by the directors or trustees
  • Property valuation (where property is the entity’s only asset)
  • The recent sale of units to a third party in the past 12 months
  • Written verification from a director of the entity (must be from an unrelated party)

While this list is not exhaustive, it’s clear that difficulties arise where there is no option but to rely on third parties for information, resulting in lengthy delays to the audit.

One common problem is that unlisted entities do not have the same disclosure requirements as public companies. Typically, SMSF auditors are provided with unaudited financial statements with assets valued at cost, which is generally insufficient audit evidence and does not satisfy r8.02B.

Obtaining a signed copy of an entity’s financials prepared by another accountant can be challenging taking time and money, both of which is a luxury in a fee competitive SMSF industry.

Sometimes in the past, a request for third party documentation has triggered a change in SMSF auditors in the hope that the next auditor would be less pedantic and the problem avoided.

With the playing field now well and truly levelled from these successful negligence claims, SMSF auditors are on notice they will be held accountable for ensuring that sufficient appropriate audit evidence is obtained to verify the market value of a fund’s investments.

The Valuation

Remember, too, that it is not the auditor’s job to undertake the valuation themselves. The SMSF auditor must review the valuation report (or equivalent evidence) provided and look for relevant issues such as sources of data used, assumptions and methods used and their appropriateness and consistency with the prior period.

To this end, the valuation must be determined not to be unreasonable.

Penalties for SMSF Trustees

SMSF trustees aren’t off the hook either. Failure to value an SMSF asset as required can result in an administrative penalty of 10 penalty units.

As the penalty is imposed per trustee, a fund with four individual trustees could currently face total penalties of $8,400, which must be paid personally and not from the fund.

On the other hand, a fund with a corporate trustee is fined $2,100 because it has just one trustee, regardless of the number of directors.

SMSF trustees and their advisers should also be aware that a change in accounting or valuation methodologies from the prior year without sufficient justification would raise additional scrutiny from their SMSF auditor.

In the case of property, there have been warnings that valuations providing a range of values based on property sale averages may not be accurate. The ATO has also stated that it is not acceptable to use the lower end of a valuation range for one purpose (such as for transfer balance cap purposes), and the higher end of the range for another purpose (such as transitional CGT relief purposes).

Audit Outcomes

Where the unlisted asset is material, and the SMSF auditor is unable to obtain sufficient and appropriate audit evidence, they are obliged to qualify the financial and compliance report sections of their SMSF audit report.

The auditor must also lodge an auditor contravention report and notify the trustees of the breach through a management letter, where the fund has failed the trustee behaviour test or the financial threshold test in relation to the market value of assets.


The ATO has stated that r8.02B was “the most common contravention not identified or reported by auditors who were referred to ASIC in 2018”.

With market valuations now one of the highest risk areas, SMSF advisers should be aware that SMSF auditors will be vigilant when reviewing documentation and valuations.

SMSF auditors are auditing funds expecting to be held accountable for reviewing documented evidence demonstrating that a fund’s assets have been valued in accordance with those principles. The SMSF audit landscape has changed yet again.

[1] Cam & Bear Pty Ltd v. McGoldrick [2018] NSWCA 110 and Ryan Wealth Holdings Pty Ltd v. Baumgartner [2018] NSWSC 1502

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