ASIC warning on fair value assumptions

Superannuation funds, particularly those running defined benefit schemes, have been warned by the Australian Securities and Investments Commission (ASIC) of the need to pick up their act on the fair valuation of assets.

The warning is contained in the report attached to an ASIC review of financial reports that pointed to concerns with respect to some property trusts and superannuation funds and noted that based on the financial reports reviewed by the regulator, unrealised losses on investment property carried at fair value was about 6 per cent of the total asset value over six months.

It noted that further write-downs might be expected at June 30.

“Our review showed that some property trusts did not disclose key valuation assumptions, include a narrative description or refer to a separate unaudited document,” the ASIC report said. “The full-year financial report must contain key assumptions such as capitalisation rates, expected vacancy rates and expected changes in future rentals.

“Movements in fair values of assets of sponsored defined benefit superannuation funds can have a material impact on their sponsors and should be reviewed,” it said.

“ASIC reviews showed an average 3 per cent negative return on plan assets in the 12 months to December 31, 2008.”