(ATO‑aligned checklist, evidence hierarchy, and audit file tips)
Valuation evidence for unlisted investments, challenges, and Audit Requirements for adequate, appropriate audit evidence.
1) Core law SMSF Auditor auditing against
- Reg 8.02B SISR: all SMSF assets must be carried at market value each income year in the financial statements. “Market value” is defined in s10(1) SISA (willing buyer/seller, arm’s‑length, proper marketing, knowledgeable parties). [classic.au…lii.edu.au]
- ATO’s valuation framework: trustees must determine market value annually, and provide objective and supportable evidence; auditors must verify that basis and obtain sufficient appropriate evidence under ASA 500. [ato.gov.au], [ato.gov.au]
- Auditor’s obligations (GS 009 & ATO): obtain sufficient appropriate evidence; document judgments; modify the IAR and lodge an ACR where criteria are met if evidence is insufficient. [auasb.gov.au], [ato.gov.au]
2) ATO’s specific guidance for unlisted shares and units (what counts as evidence)
Appropriate audit evidence to support the trustee’s market value for unlisted companies or unit trusts may include:
- Qualified independent valuation of the underlying assets held by the company/trust (e.g., business or property valuation). [ato.gov.au]
- Directors’/trustee’s substantiation: written explanation of the method, assumptions, and objective data relied upon (not just a price assertion). [ato.gov.au]
- Property valuation where the single (or dominant) underlying asset is property. [ato.gov.au]
- Recent arm’s‑length transactions (date/price of latest share or unit trade, or recent capital raise). [ato.gov.au]
The ATO also stresses that signed financial statements alone (especially at historical cost) are unlikely to be sufficient evidence of market value. [ato.gov.au]
3) Practical evidence hierarchy for unlisted investments (apply professional scepticism)
Highest weight (often sufficient on its own):
- Independent expert valuation report of the security (or of the business/underlying assets), current at or near 30 June, prepared by a suitably qualified valuer. [ato.gov.au], [ato.gov.au]
Strong weight (typically combine ≥2):
- Recent arm’s‑length trade in the same class of security (date, quantity, consideration, counterparties unrelated). [ato.gov.au]
- Recent capital raising terms to unrelated investors (offer docs, price, timetable), adjusted for rights/preferences if different classes. [ato.gov.au]
- Look‑through asset valuation (e.g., NTA/NAV rebuilt at market for investment/property vehicles), with working papers and external source data. [ato.gov.au]
Supplementary (rarely sufficient alone):
- Director/manager valuation memo detailing methodology, assumptions, cash‑flow forecasts, discounts, and external benchmarks; board minutes. [ato.gov.au]
- Audited company/trust accounts only where assets are already at fair value and disclosures support the valuation basis. [ato.gov.au]
4) Scenario‑based evidence matrix (what to request and file)
A. Unlisted property unit trust (single asset — real property)
- Independent property valuation (or agent appraisal with comparable sales listed) dated close to 30 June; trust accounts; unit register; any recent arm’s‑length unit trades. Rebuild NTA at market. [ato.gov.au], [ato.gov.au]
B. Operating private company (no active market)
- Business valuation (DCF/market multiples) or recent arm’s‑length share issue/sale; management accounts; board paper on valuation method; cap table; rights of the class; check for subsequent events post‑year‑end. [ato.gov.au], [ato.gov.au]
C. Early‑stage/start‑up (recent raise)
- Latest term sheet/offer docs and allotment journal; confirm investors were unrelated; reconcile price to ordinary share class held by SMSF; adjust for liquidation preferences if applicable; management deck supporting key assumptions. [ato.gov.au]
D. Fund‑of‑funds / unlisted managed vehicle
- Manager NAV at valuation date and methodology; look‑through where practical; cross‑reference to independent pricing or exit events; confirm any gating/side‑pocket impacts on fair value. [ato.gov.au]
E. Related‑party unit trust/company
- As above plus explicit evidence the valuation is arm’s‑length (independent property/business valuation; market rent; loan terms; lease evidence if a related tenant), to satisfy s109 SISA and valuation integrity for in‑house asset tests. [ato.gov.au]
ATO reminders: where the only underlying asset is property, obtain a property valuation; where there have been recent unrelated trades or capital raisings, those prices are persuasive if terms are comparable. [ato.gov.au]
5) Evidence quality, dating, and frequency
- The ATO expects current‑year evidence and will scrutinise funds that repeat the same values across years; lack of evidence has driven a rise in Reg 8.02B breach reports. [ato.gov.au]
- An independent valuer is not mandatory every year, but if you rely on a prior valuation you (and the trustee) should document why it remains appropriate, and consider significant events that would trigger refresh (e.g., new raise, loss of key contract, market dislocation). [ato.gov.au]
6) When to modify the IAR and lodge an ACR
- If you cannot obtain sufficient appropriate evidence that unlisted investments are at market value, modify the IAR (qualified/disclaimer per ASA 705) and lodge an ACR when reporting criteria are met. It’s not your role to perform the valuation. [ato.gov.au]
- The ATO’s auditor reviews emphasise documentation of your risk assessment, procedures, and conclusions; keep your audit file standards‑ready. [ato.gov.au], [ato.gov.au]
7) Audit file — minimum workpapers I’d expect to see
- Risk assessment for valuation assertions (existence, rights, valuation, presentation), materiality, reliance on management experts. [auasb.gov.au]
- Evidence pack: copies of valuation reports (or capital raise docs), look‑through NTA/NAV builds with source data, property valuations/appraisals (with comps), unit/share registers, cap table, any arm’s‑length trade confirmations. [ato.gov.au]
- Trustee representation (GS 009 exemplars) acknowledging responsibility for fair presentation and compliance; your conclusion memo linking evidence to the asserted value. [auasb.gov.au], [ato.gov.au]
8) Common red flags (heighten procedures)
- Same value 3 years running for property or unlisted trusts; post‑balance‑date fund‑raising at a materially different price; reliance on unaudited cost accounts; missing support for related‑party leases/terms. [ato.gov.au]
- Evidence supplied is a director email with a number only; no method/assumptions; or property appraisal without comparables. [ato.gov.au]
9) Interactions with other rules (quick pointers)
- Arm’s‑length terms & NALI: For LRBAs with related‑party loans, ensure PCG 2016/5 (safe harbours) is met or that you have evidence terms mirror a commercial loan; otherwise NALI risk can arise (taxed at top rate). [ato.gov.au]
- In‑house asset %: Robust market values are critical to testing the 5% cap; valuations that are stale or unsupported can distort IHA calculations. [ato.gov.au]
Quick audit checklist you can lift the ease audit process
- Identify each unlisted holding → classify (property trust, operating company, fund‑of‑funds, related party). [ato.gov.au]
- Set materiality & risk for valuation; determine if expert work is needed (GS 009; ASA 500/620). [auasb.gov.au]
- Request evidence tailored to class (see matrix): independent valuation or recent arm’s‑length price or look‑through NTA@market with external data, plus method/assumptions memo. [ato.gov.au]
- Evaluate sufficiency/appropriateness: date proximity to 30 June, independence, method suitability, sensitivity to key assumptions, subsequent events. [ato.gov.au]
- Conclude & document: tie evidence to ledger value; if insufficient → escalate, seek more, or modify IAR/ACR. [ato.gov.au]
Want templates?
Please contact us for these templates;
- trustee valuation pack request (by asset class),
- a look‑through NTA/NAV workbook (with source‑link checklist), and
- a 1‑page audit conclusion memo for unlisted investments.
Given your background in valuations and complex SMSF audits, I can tailor them to start‑ups, unlisted property vehicles, and related‑party structures so they line up neatly with GS 009 and the ATO’s “Verifying market value” page. [auasb.gov.au], [ato.gov.au]
References (primary):
- ATO: Verifying the market value of fund assets (unlisted shares/units evidence; auditor actions). [ato.gov.au]
- ATO: Guide to valuing SMSF assets (trustee obligations; asset‑class notes). [ato.gov.au]
- SISR reg 8.02B: annual market value requirement. [classic.au…lii.edu.au]
- AUASB GS 009: SMSF audit guidance (evidence, documentation, using experts). [auasb.gov.au]
- ATO: Understanding market valuations for your SMSF (compliance focus; increases in 8.02B breaches). [ato.gov.au]
- ATO: What we look for when auditing an SMSF auditor (audit file expectations/checklist). [ato.gov.au]
- ATO: PCG 2016/5 (LRBA safe harbours; NALI risk). [ato.gov.au]
We have experienced many times that valuation information from unlisted entities is not very forthcoming, transparent or provides a reasonable basis of valuation. Which is why, more often than not, as an auditor, we don’t have a choice but to qualify Part A and Part B of the Audit Report.
Disclaimer: Please note that the above article must not be relied upon in part or in entirety. This writing is only a brief guidance, and may not reflect the actual nature of your SMSF Investments valuation. Which will be looked at, at the time of audit in detail and we will provide further audit guidance specific to your SMSF audit.
Please contact us to discuss your requirements.
Keywords for SMSF Valuations
- SMSF Valuations
- SMSF Unlisted Investments
- SMSF Market Value
- SMSF Valuation Evidence
- SMSF Independent Valuation
- SMSF Asset Valuation
- SMSF Trustee Documentation
- SMSF Arm’s-Length Transactions
- SMSF Property Valuation
- SMSF Business Valuation
- SMSF Capital Raising
- SMSF NTA/NAV Rebuilding
- SMSF Fair Value Reporting
- SMSF Audit Evidence Hierarchy
- SMSF Objective Data
- SMSF External Benchmarks
- SMSF Valuation Memo
- SMSF Financial Statements Support
- SMSF Recent Transactions
- SMSF Asset Disclosures