The fund, which was suspended on 30 November following the FSA’s issuance of draft guidance on ‘death bonds’, is deemed by auditor Ernst & Young to be worth approximately $100m less than the directors’ valuations.
Ernst & Young said it had been unable to obtain sufficient appropriate evidence to provide a basis for audit opinion for the full year to 31 December 2011.
Yet, in seeking to form an opinion on the financial statements, it "disagreed with the directors’ valuation of their investments in life policies".
In its annual financial statement the investments in EEA Life Settlements Fund are valued at fair value of $871m.
The auditor pointed out determining an appropriate fair value for investments in life policies is subject to the application of significant judgment, particularly so in the case of those in which EEA invests in because of the high degree of medical impairment of the underlying lives.
Directors should have picked up
It added the directors should have picked up on the need to change their policy NAV calculation or valuation processes as the year progressed and evidence of their shortcomings was presented.
Ernst & Young said the directors maintain the evidence available to them during the year did not indicate a need to amend or otherwise change the Policy NAV valuation methodology.
Meanwhile, the fund’s custodian, BNP Paribas Securities Services, said it noted the independent auditor’s report but under its role as custodian had "no responsibility for selecting or valuing the investments of the Fund", and therefore neither the responsibility, nor the expertise required, to pass comment on the approach taken to value them.
EEA Life Settlements Fund is still suspended and is likely to remain so until a restructuring is completed, the director’s report explained.
Options for a restructuring are being considered by directors at the moment and back in June last year they outlined these to investors.