Hello Natalia
Thanks for the question.
Every SAFE (Simple Agreement for Future Equity) note is different. Some may only convert into shares if certain criteria are satisfied – so if the criteria are never met, the SAFE note never converts.
Some have more debt like characteristics, paying “interest” to the holder.
It seems that in this instance the SAFE notes will convert to shares in the start-up 90 days after they are issued.
The audit issues appear to be:
- existence
- valuation
Assuming the SAFE notes are on hand at year end – that is they have yet to convert, a search of the share registry will not be of assistance in relation to existence.
The financial statements of the company that issued the SAFE notes (hopefully audited by a Registered Company Auditor) should reflect them in the balance sheet and may also have a note to the accounts that lists the holders of the SAFE notes.
Alternatively, as auditor you could seek written confirmation from the company confirming that the super fund had an interest in the SAFE notes.
In relation to market value, documentation surrounding the issue the SAFE notes would at least confirm the subscription price. It is assumed that other arm’s length parties – in addition to the super fund, also subscribed for the notes.
Would be interested to hear the thoughts of other auditors in relation to how they have dealt with audits of super funds that have invested in this emerging asset class.
Best regards
The Auditors Institute