In practice, we often receive asset holding reports that do not show a clear market value. Valuation terminology can be confusing — terms like market value, fair value, net asset value (NAV) and net tangible asset (NTA) are sometimes used interchangeably when they shouldn’t be.
Words such as face value, account balance, or simply value or balance may also appear in statements. While this may be acceptable for commercial reporting, for SMSF audit purposes such terminology may indicate insufficient evidence of market value.
Understanding these terms correctly is essential for trustees and auditors, as each has a distinct meaning under superannuation law, accounting standards, and valuation practice.
This article breaks down these commonly used terms, explains how they apply in SMSF contexts, and highlights when to use each one.
Market Value — the Benchmark for SMSFs
Under SIS Regulation 8.02B, trustees must report all assets at market value each financial year.
SIS Section 10(1) Definition
Market value, in relation to an asset, means the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller if the transaction were at arm’s length, after proper marketing, and the parties acted knowledgeably and prudentially.
Why It Matters
- It is the legislated standard for SMSF financial reporting and audit compliance.
- Ensures member balances are accurate.
- Ensures related-party transactions are reported on an arm’s-length basis.
Examples of Acceptable Evidence
- Independent expert valuation
- Property valuation if the company or trust holds real estate
- Price of a recent arm’s-length sale between unrelated parties
The ATO expects valuations to be “fair and reasonable” — based on objective, supportable data and capable of explanation to a third party.
Fair Value — Accounting Standard Definition
The term fair value comes from AASB 13 Fair Value Measurement (aligned with IASB standards).
AASB 13 Paragraph 9 Definition
“The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
How It Differs from Market Value
- Market value is defined by superannuation legislation.
- Fair value is defined by accounting standards, and it can apply to both assets and liabilities.
- In practice, the two are often similar, but fair value focuses on the financial reporting perspective, while market value focuses on regulatory compliance.
In SMSF Context
Where audited financial statements refer to fair value, auditors must ensure that the reported figure also satisfies the market value requirement under SIS Reg 8.02B. In most cases, fair value ≈ market value, provided the valuation method and evidence are sound.
NTA and NAV — Asset-Based Valuations
Net Tangible Assets (NTA) reflects the value of the company’s tangible assets — such as property, cash, and investments — after deducting liabilities and excluding intangible assets like goodwill, intellectual property, or development costs. Net Asset Value (NAV), on the other hand, includes both tangible and intangible assets.
Formulas
NTA = (Total Assets – Intangible Assets – Liabilities) ÷ Number of Units or Shares
NAV = (Total Assets – Total Liabilities) ÷ Number of Units or Shares
Common Uses
- For unit trusts, managed funds, or private companies
- To estimate value when there is no active market for the investment
- As a starting point for fund performance reporting
For asset-holding entities with minimal trading activity, NTA or NAV often approximates market value.
Limitations
NTA and NAV can be misleading if:
- Underlying assets are recorded at historical cost instead of market value.
- Significant intangible assets exist but are not independently valued or recognised.
Where the entity holds material intangibles, NAV may not reflect what investors would actually pay, because intangibles are often recorded at cost or conservatively under accounting standards. Market value also incorporates investor sentiment, earnings potential, and recent transaction data that NAV does not capture.
In other words, NAV may be accurate on paper but still differ materially from true market value.
Although NTA or NAV is widely used in reporting, for SMSF audit evidence they are reliable only under limited circumstances — typically where the underlying assets have been recently revalued to market, and there is no material intangible value or trading activity affecting price.
Face Value — the Nominal Value of a Security
Definition:
Face value (also called par value or nominal value) is the stated value of a financial instrument — such as a share or bond — as shown on the certificate or in the issuer’s documentation.
It represents the value assigned by the issuing entity, not the amount a buyer would pay in the market.
Example:
If a company issues shares at a face value of $1 each, that $1 remains the nominal value regardless of whether those shares later trade for $5 or $0.50.
When It’s Used
- In company constitutions and share registers, to record the issue price or legal capital
- For bonds or fixed-interest securities, where the face value represents the amount repaid at maturity
- Occasionally in trust deeds or unit registers, where it defines the initial price per unit
Key Takeaways for Trustees and Auditors
- Market value is the only legally required basis for SMSF reporting under SIS Regulation 8.02B.
- Fair value comes from accounting standards and should broadly align with market value.
- NAV and NTA are helpful internal measures but must be tested against current market evidence.
- Face value is purely nominal and not indicative of market worth.
Always maintain independent, objective evidence demonstrating that valuations are fair, reasonable, and capable of explanation to a third party — as required by the ATO’s SMSF valuation guidelines (QC 26343).
For practical steps on determining the market value of unlisted shares and units, see our main article: How to Value Unlisted Shares and Units in an SMSF.