The Unlisted Trust Unit Revaluation
The Rivergum Super Fund holds 12,000 units in the Bellbird Agricultural Trust, an unlisted wholesale trust that owns three irrigated farms. The units were acquired in 2019 for $1.2 million and were carried at $1.2 million at 30 June 2025. For 30 June 2026 the trustee has revalued the units to $1.95 million based on a 'directors' assessment' that capitalises forecast earnings at 14x. The trust's audited accounts show net assets of $9.4 million and 120,000 units on issue, implying $78.33 per unit, or $940,000 for the fund's holding. The trustee's 14x multiple implies $162.50 per unit. The trust's accounts are audited by a small firm and contain a going-concern note. The fund's total assets are $3.1 million; the units are its largest holding. The trustee has not obtained an independent valuation since 2019.
1. Evaluate the reliability of the trustee's valuation and the audit evidence available.
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Reliability of the trustee's valuation. The 14x capitalisation of forecast earnings is not supported by observable market data for this trust. The trust's own audited net assets imply $78.33 per unit, which is $940,000 for the fund's holding, materially below the trustee's $1.95 million. The gap of roughly $1.01 million is 33% of the fund's total assets and is material. The trustee's approach values the trust at $19.5 million against net assets of $9.4 million, a premium of more than 100%, which requires strong support that has not been provided.
Evidence available. The trust's audited accounts are useful but not sufficient: they are historical, contain a going-concern note, and are audited by a small firm. The auditor should obtain the trust's financial statements, the unit register, the trust deed, and any recent capital raisings or unit transfers that indicate fair value. If there have been no transfers, the auditor should consider whether the trust's net asset value is the best available evidence.
Audit approach. The auditor should evaluate the trustee's assumptions: the forecast earnings, the 14x multiple, and the discount rate. The auditor should compare the multiple to observable multiples for comparable agricultural trusts and test the forecast against historical performance. The auditor should also consider whether the going-concern note affects the valuation.
Conclusion. The trustee's valuation is not supported by sufficient appropriate evidence. The auditor should request an independent valuation or a documented basis for the premium. If the trustee cannot support the value, the auditor should consider a qualified opinion and report the matter to the trustee.
2. What are the implications for the fund's financial statements and the auditor's report if the trustee refuses to adjust?
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Financial statement impact. The units are the fund's largest asset. If the carrying amount is overstated by $1.01 million, the fund's net assets and members' benefits are overstated by roughly one-third. That is material and pervasive to the financial statements. The auditor should quantify the misstatement and consider whether it affects the fund's ability to meet its liabilities, including any LRBA or pension obligations.
Auditor's report. If the trustee refuses to adjust and the auditor cannot obtain sufficient evidence, the auditor should issue a qualified opinion or an adverse opinion, depending on whether the misstatement is material but not pervasive or both material and pervasive. The auditor should describe the matter in the basis for opinion, including the carrying amount, the trustee's basis, and the auditor's conclusion.
Reporting to the ATO. If the fund's investments are not valued at market value, the fund may not comply with the SIS Act's requirement to value assets at market value. The auditor should consider reporting the contravention to the ATO. The auditor should also consider whether the trustee's conduct raises a question about the fund's compliance with the sole-purpose test.
Member communication. The auditor should consider whether the trustee needs to inform members of the valuation issue. The auditor's report is provided to the trustee, and the trustee is responsible for communicating with members.
Documentation. The file should record the evidence obtained, the trustee's response, the auditor's conclusion, and the reasons for the opinion. The auditor should also document the consideration of the going-concern note and its effect on the valuation.