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I am currently auditing a fund I also audited last year.
It had a large tract of farmland which was sold to developers to be subdivided and paid for over a period of 10 years.
The accountant has been resistant to getting a valuation of remaining farmland as he felt the "once every 3 year rule" still applies.
Establishing which portion of land was still owned by the fund and what was in the hands of the developer was a little murky in 2019 as new titles were being produced around that time.
The trustees signed a representation letter confirming they believed the remaining property value was correct at approximately 1 million for the 2019 year. I noted in my management letter that the farmland value had not changed for sometime and suggested a revaluation.
This year, they have included comparison values with properties close by, and decided that the remaining property is now worth around 4 million. 4 million is more likely accurate based on the new titles received. So I assume I should qualify financials, based on the fact that the opening balances were radically out?
This years financials appear accurate otherwise. Is a contravention required?
The trustees also receive 500k per year as the payment from the developer. This income is included on the financials as income, but not listed on the tax return. Members have both pension and accumulation accounts, so it was my understanding that the capital gain would not be entirely exempt in this case?
Both trustee accumulation accounts and pension accounts now exceed the transfer balance cap.
Any input would be much appreciated.
Thanks, Clare
Hi Clare
Normally if the auditor was satisfied with the valuation of an asset at 30 June 2019 and then at 30 June 2020 a valuation was obtained (at a later date) that increased the value then this would not be a reason to qualify on the opening balances. If you were the auditor for the first time then yes the auditor is required to consider if the opening balances are materially correct.
If you are of the view that the valuation is not materially correct at 30 June 2019 (when doing the 30 June 2020 accounts) you would consider qualifying re regulation 8.02B that requires assets be valued at market value. The Trustees could consider doing an amended financial statements and amended annual return (ITR) at 30 June 2019 to correct the valuation issue. Another consideration could be disclosing the valuation issue in the other information part of the audit contravention report if the valuation issue has not been addressed / corrected.
Without seeing the financial statements or annual return it is hard to comment on the income received by the Fund. I would first query whether it is investment income or a capital gain (and consider any capital losses carried forward). I agree that you would expect to see the income listed on the tax return if the Fund is in accumulation and pension mode. You would need to obtain the actuarial certificate to confirm that the tax has been correctly calculated.
Thanks
SMSF AAA