The ATO has declared its intention to focus its compliance activities on the practice among SMSF auditors of using reciprocal arrangements that represent breaches of independence.
Specifically, the regulator will be looking into two types of reciprocal arrangements, one being where two auditors with their own SMSFs agree to audit each other’s fund.
“The threat to independence is akin to the scenario of a two-partner practice in which one partner is asked to audit an SMSF where the other partner is a trustee,” the ATO said.
The SMSF watchdog also stipulated that neither itself nor the Australian Securities and Investments Commission (ASIC) recognised there were any safeguards that could be employed to reduce the breach of auditor independence, regardless of the commonly held belief among practitioners there were.
The other reciprocal arrangement raising ATO concern was the practice where two professional accountants, each preparing the financial statements for several SMSFs, agree to audit each other’s clients.
The ATO outlined three potential problem areas with regard to reciprocal SMSF auditing arrangements: the possibility the auditor may vary their audit opinion to obtain a favourable result for their own fund, the possibility of the close relationship with the other practitioner influencing the thoroughness of the audit process, and the potential to be intimidated to perform a less vigorous audit due to the other practitioner’s knowledge or industry contacts.
“Approved SMSF auditors who continue to engage in reciprocal auditing arrangements will be subject to increased scrutiny,” it said.
“Referral to ASIC may result if we consider SMSF auditors have failed to meet the independence requirements.”