ATO will examine SMSF auditor independence

SMSF auditor independence

The ATO will examine the work of SMSF auditors whose firm has conducted the audit and prepared the financial statements for any SMSF following recent changes to an independence guide that impose restrictions on both actions being undertaken by the same party.

The regulator stated its move was in response to an Independence Guide released by the Accounting Professional & Ethical Standards Board (APESB), in conjunction with Chartered Accountants Australia and New Zealand, CPA Australia and the Institute of Public Accountants.

The new guide includes changes that were made to the APES 110 Code of Ethics for Professional Accountants, which took effect on 1 January 2020 and mandatorily applies to audits and reviews.

In highlighting the new guide and code, the ATO pointed out in an update on its website that some changes to the guide apply to SMSF auditors.

“The guide now makes it clear that an SMSF auditor cannot audit an SMSF where the auditor, their staff or their firm has prepared the financial statements for the SMSF, unless it is a routine or mechanical service,” it said.

It said examples of services that are “routine or mechanical in nature” would require no professional judgment and examples were listed in the code, and SMSF auditors needed to have sufficient evidence they were equipped to prepare the statements.

“When monitoring whether the preparation of accounts by the auditor’s firm is routine or mechanical under the new standard, the commissioner will expect to see appropriate evidence on the auditor’s file that the SMSF trustees took responsibility for the financial statements and had sufficient knowledge, skills and experience to do so,” it said.

“For example, this evidence could consist of trustee coded transactions and approved trustee entries in the trial balance that the auditor’s firm then use to prepare pro-forma financial statements.

“Auditors shouldn’t assume that copies of signed financial statements and trustee representation letters amount to audit evidence that meet this requirement.”

SMSF auditors will also be expected to show they have retained their independence while carrying out their duties and have sufficient distance from anyone who prepared the financial statements.

“Even where the preparation of the financial statements is routine or mechanical, the commissioner and the Australian Securities and Investments Commission as reasonably informed third parties require the auditor to use safeguards to reduce the self-review threat to an acceptable level,” the ATO said.

“These safeguards could consist of using professionals who are not audit team members to prepare the financial statements or having someone review the audit work who was not involved in preparing the financial statements.”

It also pointed out the guide had practical examples of scenarios where auditors may breach the independence standards in the restructured code and it would be in contact with auditors who carried out the audit and financial statement preparations.

“During the 2020/21 financial year, the commissioner will write to auditing firms where our data indicates that the auditor could also be auditing financial statements prepared by the same firm to assist auditors comply with the requirements under the restructured code.”

In May, an SMSF auditor warned her peers that advocating for clients was a breach of independence and had been identified by ASIC as an area of concern for it among the auditing sector.

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