At JustSMSF Audits, we've observed a growing trend of SMSFs investing in a wide range of widely held unlisted trusts. These investments are often professionally managed and can hold substantial assets, making them a potentially valuable component of a diversified SMSF portfolio.
However, they can present significant challenges at audit time.
Under SIS Regulation 8.02B, "an asset must be valued at its market value." [1] While this sounds straightforward, it can create real difficulties when combined with the requirements of Australian auditing standards--particularly ASA 500, which deals with audit evidence.
Establishing the existence of the investment is often the initial challenge. Ideally, this would be supported by a signed unit certificate. In practice, many unlisted trusts either do not issue certificates or provide unsigned versions.
Instead, trustees often rely on email confirmations from trust administrators. However, simply asking whether units are held--and receiving a confirmation--does not usually meet the standard of independent, reliable audit evidence.
Ultimately, it is the trustee's responsibility to ensure there is sufficient documentation confirming that the investment is held in the SMSF's name.
Valuation tends to be even more complex. The ATO expects SMSF auditors to consider multiple factors that may affect the value of a unit trust [2], and this requires robust supporting evidence. Common challenges include:
Lack of active market trading
Units in these trusts are rarely traded, and when they are, it's typically not on an open market. This makes it difficult to obtain reliable, verifiable pricing data.
Limited transparency in valuations
Many trusts issue annual "certificates" stating a unit value as at 30 June. However, these often lack detail on how the valuation was determined. It's also common to see values remain unchanged over multiple years, limiting their reliability as standalone evidence.
Limited regulatory oversight
These trusts are generally unregulated. They are not required to produce audited financial statements or report to a regulator, making it difficult to assess their financial position, solvency, or underlying asset values.
Minority investor limitations
SMSFs are typically minority investors and may not have the influence needed to request additional financial information from the trust.
Complex underlying investments
Many trusts invest in early-stage or development projects, where independent valuation can be highly subjective and difficult for an external SMSF auditor to verify.
As a result of these challenges, we are seeing an increasing number of audit qualifications relating to SIS Regulation 8.02B. When an audit is qualified, the auditor must assess whether it meets the ATO's criteria for reporting contraventions. If it does, the auditor is required to lodge an Audit Contravention Report (ACR).
A qualification under Regulation 8.02B--and even the lodgement of an ACR--does not necessarily mean that the fund or trustee has breached SIS requirements. It simply indicates that the auditor was unable to obtain sufficient appropriate evidence to meet auditing standards.
Trustees remain responsible for determining and supporting the market value of their investments. If the ATO reviews the fund, trustees will need to demonstrate that the value of the unlisted trust units has been accurately recorded.
[1] R8.02B SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 (Cth)
[2] Guide to valuing SMSF assets | Australian Taxation Office