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Hi SMSFAAA team,
I am auditing a fund (2022) with investment in an Australian partnership. The investment valued at $95,000 represents 5.14% of the fund's asset at 30/06/2022 (and 8.21% at 30/06/2021). I requested the 2022 partnership's financial statements that the trustees have been chasing for 5 months now.
They prepared a minutes stating that:
"At 94,268.83 the XXX Partnership represents 5.14% of the fund assets at 30 June 2022. The directors noted that during the past year and nearly 4 months Mr.XX (the manager) had been requested on several occasions to supply signed draft accounts for the Partnership for 30 June 2022 and he has been unable or unwilling to do so to date. He has expressed the view that “the valuation is questionable (& potentially zero)”.
RESOLVED: That in view of the current circumstances the Trustee Valuation of the XXX Partnership for 30 June 2022 shall be 1.00.
Would you accept this valuation?
How would you audit this fund?
Thank you very much in advance.
Kind Regards.
No.
Valuations must come with objective, verifiable supporting evidence for Reg 8.02b purposes.
Trustees cannot be objective by writing "we value XYZ", because they have or maybe have reasons to alter the value to suit (avoiding breaches, TBC limits, pension minimums, etc).
I generally go financials if it's an unrelated 3rd party. If related (which it appears to be), a June 30 bank statement and something to support asset value (basic property valuation, share holdings etc). For these sort of things, I "mini-audit" to ensure they're valued okay for Reg 8.02B.
Hi Jean
My view is to not accept the valuation as it is not supported by anything other than a declaration from the trustee. It could have a higher actual value and then would be a material asset to the Fund.
I would audit the Fund by raising a finanacial qualification that you have not been able to verify the value of the investment. I would also raise this in your management letter to the trustee.
Re the SIS compliance you could qualify re section 35C(2) that requires that:
"The trustees must provide the auditor with the necessary documents to complete the audit in
a timely and professional manner; and within 14 days of a written request from the auditor".
That is your breach is that you have not been able to be provided with documents so that you can verify the existance of the asset and its value. Arguably normally a trustee should be able to get information re the value of an investment that it has invested in.
You could also qualify on regulation 8.02B that requires:
"When preparing accounts and statements required by subsection 35B(1) of SISA, an asset
must be valued at its market value".
You are unable to verify the value of the investment so as a result you have no ability to sign off on this regulation.
It would be great to get other members views on the query raised.
Thanks
The Auditors Institute