ATO activity regarding SMSF auditor independence in the 2018 financial year will focus on referral networks and their ability to compromise professional standards in this area.
“One of the aspects we’ll be looking at is the referral source for audits, especially where there is a heavy reliance on fees generated by a particular source or where an auditor has a close personal or business relationship with that referral source,” ATO SMSF segment assistant commissioner Kasey Macfarlane said in an interview with the SMSF Association.
In relation to these arrangements, Macfarlane emphasised it was an auditor’s responsibility to recognise situations that might compromise their independence and put proper safeguards in place to address the issue.
She added while APES 110 Code of Professional Ethics for Accountants provided scenarios for practitioners of which to be mindful, auditors could not restrict themselves to the situations identified in the standard.
In regard to the ATO’s SMSF auditor independence compliance activities for 2016/17, she revealed the regulator had identified a practice that was becoming more prevalent.
“Recently we seem to have seen a number of instances where auditors have audited a relative’s fund and in other cases we’ve seen auditors auditing clients where the auditor’s relatives have prepared the financial statements,” she said.
“These really attract our attention and will be a trigger for further review and investigation. Those sort of circumstances really elevate those threats to independence such as self-interest, familiarity and potential intimidation,” she warned.
According to the assistant commissioner, a further concern for SMSF audit independence during the year was where a practitioner was acting as a tax agent for a fund as well as performing the audit on the fund.
“That of itself may be okay, but we’re looking to make sure they are not also involved in the preparation of the financial statements,” she said.
On a positive note, she highlighted there had been a decrease in situations where auditors were performing the audit on their own SMSF.
“Unfortunately we do still see some isolated incidents of this, which is a little bit disappointing,” she said.
