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I am auditing a superfund for FY2021. The superfund has invested more than 90% of the fund into Nonconvertible bonds of unlisted company (not related party) in Indonesia. The reason for this investment is higher rate of interest.
I have been provided with the copy of bond showing rate of interest and repayment/maturity of bond after 7 years. The superfund is receiving interest as per the terms specified.
The accounts of the Indonesian company have not been audited. However, even audited accounts will not be useful considering its overseas company I believe.
Trustees are happy to provide solvency certificate from the professional firm based on Indonesia to avoid part B qualification for valuation of bonds.
Should we able to rely on solvency certificate? Any other matters to consider in this case?
Thank you.
Hi Umesh
Thanks, I have not come across an investment such as this before in an overseas company. My initial concern is that 90% of the Fund's assets have been invested in this 1 asset that appears to be a risky investment.
My starting point would be to determine if the auditor has to issue a Part A qualification re not being able to verify the existence and value of the asset. This will depend on the supporting documentation you obtain.
In relation to Part A and Part B qualifications re being able to rely on the solvency certificate you would need to review this as to the basis that it was prepared. You are relying on the work of an expert so would need to consider the audit requirements re this.
You could argue based on what you have advised that the trustees have valued the asset at market value and regulation 8.02B of SIS has been complied with as a solvency certificate has been obtained.
Other issues to consider are:
1) Does the investment comply with the Fund's investment strategy?
2) Has the investment been made on an arm's length / commercial basis?
3) Raise a management letter to the trustees re any concerns you have.
If other members have a view please let the forum know.
Thanks
SMSF AAA