In my last column I detailed a new Superannuation Industry Supervision (SIS) Regulation, 4.09A, dictating that personal assets must now be kept separate from the assets of a self-managed super fund (SMSF).
This however was not the only new regulation to have been introduced recently. SIS Regulation 8.02B has also appeared for the first time and deals with the subject of SMSF asset valuation.
The new regulation stipulates that from the 2012/13 financial year, and in any subsequent years of income, assets of an SMSF must be valued at their market value.
The issue of SMSF asset valuation came to prominence during Jeremy Cooper’s Stronger Super review however he’d recommended the use of net market value as the standard measure.
Net market value is effectively the value that would be assigned to the assets of the fund if the fund was to be wound up.
Until now SMSF trustees had in the main used either net market value or market value to measure the worth of their investment portfolios. Consistence of methodology was obviously sadly lacking in this environment as was the potential meaningful comparison of performance.
As with a lot of other regulatory changes valuing SMSF assets at their market value is not without its problems.
Net market value is a popular operational method because it takes into account any costs incurred upon the disposal of fund assets.
Suffice to say implementing the market value will mean significant expenses associated with the sale of fund assets will now have to be accounted for separately.
However market value was chosen as the preferred approach because it is used in most other areas meaning it would not have made much sense to use net market value just for the preparation of an SMSF’s financial statements.
The new regulation also gives accountants and auditors of SMSFs a further item to think about at year end.
In order to comply with the change a direct property that makes up a significant portion of an SMSF portfolio may dictate the need to have a provision for asset disposal costs in the fund’s set of accounts to ensure the value of the fund is not too high.
Adopting this precaution would also trigger the need to disclose this approach in the notes of the SMSF’s financial statements.
Darin Tyson-Chan was recently awarded the 2012 SPAA Trade Media Journalist of the Year. He is the editor of self managed super, a new publication dedicated to the SMSF practitioner.
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