Changes to independence requirements for SMSF auditors will impact hundreds of thousands of funds, with many required to find a new auditing firm by July 2021, according to an SMSF technical expert.
Heffron head of SMSF technical and education services Lyn Formica said the development earlier this year of a new independence guide by the Accounting Professional & Ethical Standards Board, which prohibits an SMSF auditor from auditing an SMSF if the auditor, their staff or their firm also prepared the financial statements for that fund, could affect at least 200,000 funds.
“Figures I have heard quoted is that, on that basis [of not being able to audit a fund], the ATO would be expecting 200,000 to 300,000 SMSFs to be changing their auditor as a consequence of these changed views of independence requirements,” Formica said as part of a recent webinar.
She said SMSF auditors were waiting on further information from the ATO and professional bodies due to the size of the potential impact on the sector of the new independence requirements.
“We only have 5000 SMSF approved auditors and we will not be able to push all that work to those auditors,” she said.
“There would not be sufficient capacity to do that, so my understanding is that we are in education mode from the ATO’s point of view.”
Formica noted the ATO will be contacting SMSF auditors where it can see from its own data that the auditor and tax agent are from the same firm and it is expecting people to have changed their processes from 30 June 2021.
“We have the next 10 months to be thinking about how we can do things differently and have processes in place to satisfy those independence requirements from 1 July 2021. People are continuing with their Chinese walls scenario for the moment, but it is not something that can continue for a significant period of time,” she said.
She also highlighted that while the ATO may not take any action until mid-2021, SMSF auditors needed to check their professional indemnity (PI) insurance still provided cover during the transition period.
“If you are someone who falls within that category, I would suggest you check your PI insurance because at the moment you are not meeting the independence requirements even if the ATO is not taking any compliance action in relation to it,” she said.
“You still want to make sure your insurer is covering you and don’t want to end in the situation where your insurance cover is void simply because we are in this limbo-land period where we are allowed to continue what we are currently doing, even though it does not meet the letter of the law, up until 30 June 2021.”
