ASIC puts super funds, auditors on notice for poor valuation practices
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The news: The corporate regulator has put superannuation funds and auditors on notice in regards to valuation practices for unlisted assets, including private credit.
The context: The Australian Securities and Investments Commission (ASIC) will release the findings of its review into financial reporting and audit of super funds today.
In its report, the regulator was particularly concerned with the valuation processes of registrable superannuation entity (RSE) assets held through unlisted managed funds, including private credit.
It said super trustees and auditors need to be doing more so that valuations of assets were reliable and give members confidence in their investments.
ASIC noted that it was difficult to compare investments between RSEs as they each took different approaches when categorising unlisted investments, often with limited disclosure about their approach.
The regulator was also concerned that sponsorship and advertising expenses were not separately disclosed from other expenses in some RSE financial reports as RSEs “took a narrow, quantitative approach to materiality”.
ASIC said super trustees should:
- Do more to ensure valuations provided by external fund managers are reliable;
- Ensure their fair value disclosures are sufficient to allow members to understand the nature of the investment and assess the reliability of valuations; and
- Consider disclosing more information about expenses.
ASIC also said RSEs should not unduly rely on redemption prices if the price was last updated before the balance date, there were indicators of impairment, or if the price was not reliable for reasons such as infrequent valuations or restricted redemptions.
On the auditor side, ASIC said they should:
- Do more to obtain sufficient audit evidence about investment valuations; and
- Consider whether they should apply lower levels of materiality when conducting their RSE audits.
It noted that auditors relied on investment values provided by external fund managers or audited financial reports of the managed investment schemes for the valuation of investments, including private credit investments.
Auditors, it said, had “insufficient evidence through substantive procedures on the accuracy or reliability of information from external fund managers”.
What they said: “We found that some auditors also did not adequately challenge the valuations provided by fund managers of managed investment schemes. This could undermine member confidence in the accuracy of financial information about their super fund,” ASIC commissioner Kate O’Rourke said.
The source: ASIC
