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The Fund has invested $1M into a widely held trust that is involved in a property development on quite a large scale. The value of the trust's investments in the property development is $35m (at cost). The accounts of the trust are not audited however the client receives annual financial statements and a report regarding the development's progress. There is no attempt to value the assets of the Trust at market value and the trustees of the Fund cannot value the market value of the Trust.
The financial statements of the Fund have been properly prepared and documentation in the form of unit trust certificates and receipts support the amount invested by the Fund into the Trust. The values of the units however are at cost,
My dilemma is whether to qualify both Part A & Part B of the financial statements or make a Disclaimer of Opinion for both Part A & Part B of the Audit Report. Additionally, it is my opinion that it would not be necessary to lodge an ACR.
Any comments or advice would be greatly welcomed.
Hi Ronald
Thanks, there may be differing views re this query so it would be great to get other forum members views.
My view is to raise a Part A financial qualification. The qualification could state:
"Part A: Financial audit
Qualified Opinion
I have audited the special purpose financial report of XYZ Superannuation Fund
comprising the statement of financial position as at 30 June 2022, and the operating
statement, a summary of significant accounting policies and other explanatory notes.
In my opinion, except for the effects on the financial report of the matter referred to in
the Basis of Qualified Opinion section of my report below, the financial report
presents fairly in all material respects, in accordance with the accounting policies
described in the notes to the financial report the financial position of the fund at 30
June 2022 and the results of its operations for the year then ended.
Basis for Qualified Opinion
The Fund Trustee has invested in a Trust which is valued at $1,000,000.00 in the
Statement of Financial Position which is the cost amount. Due to the nature of the Trust’s assets I cannot verify the market value of this investment. Hence, I provide no opinion on
the market value of this asset as at 30 June 2022."
In relation to Part B of the audit report my view is that if you qualify in relation to SIS Reg 8.02B re a breach of "an asset must be valued at its market value" then you would be required to lodge an ACR (Auditor Contravention Report).
There may be argument that it is appropriate to record the investment in the Trust at its cost amount in the financial statements of the Fund until the results of the property development support a higher or lower market value compared to the cost amount. This argument could support that no Part B audit report qualification is required. Preferably a statement would be obtained from the Trust that the cost amount is a reasonable market valuation until the results of the development are known.
In relation to valuing assets the ATO does note that:
"Investments without a ready market
When making investment decisions on behalf of the fund, you have certain duties and responsibilities which are designed to protect and increase a member's benefits for retirement. It is expected that you would be aware of the value of an asset at the time of acquisition, its potential for capital growth and its capacity to produce income.
It's unlikely that an asset with no known value or potential for capital or income growth would be considered a prudent investment to support members' retirement goals."
Thanks
SMSF AAA