A specialist practitioner has predicted the new independence standards introduced for auditors could result in an improvement in the quality of SMSF audits.
The amendment to APES 110 has dictated firms carrying out full accounting and administration functions for an SMSF can no longer perform the audit of the fund, as well as leading to many practices having to jettison their auditing activity for existing clients.
“I think this is an opportunity to increase the quality of SMSF audits in total. If you’ve got a firm that is doing 300 or 400 audits a year, you think that’s a fair number, but they’re generally performed for the same 300 or 400 funds year after year,” Evolv chief executive Arthur Favos told selfmanagedsuper.
“So there’s actually not a lot of scope in relation to experience.”
According to Favos, if practices currently auditing up to 400 SMSFs are forced to relinquish this activity due to the new independence standards and the clients are picked up by a larger audit firm, a higher level of auditing could result across the entire sector.
“If a firm is doing 10,000 plus audits a year, you’re pretty much guaranteed that it’s got exposure to a lot of issues out there or most of the issues. So you’ll have a broader depth of experience to draw on in completing the audit and guiding the client if there are issues than someone who is only doing 500 audits, particularly when those 500 are only internal funds,” he noted.
Despite the fact some accounting firms will have to pass their current SMSF audits over to other practitioners, Favos has identified a positive outcome to the process.
“I think maybe accountants are being a bit narrow-minded in relation to the opportunities that might arise from this situation,” he said.
“For example, I know of one firm that was auditing 150 funds for which it was also doing the accounting and administration and had given these audits up reluctantly. However, in the last four weeks they’ve actually picked up 400 from other accountants having to do the same thing.”
He pointed out the firm in question could not be seen to be guilty of purely swapping clients because the audits came from practices that were completely unrelated in any way.
“So I think there are opportunities there for practices to remarket themselves as a firm that can do audit,” he advised.
Predictions have been made that up to 200,000 SMSFs will have to appoint a new fund auditor as a result of the new independence standards.
