Audit transition period requested

auditor transition period

The SMSF Association would like a proper transition period to be granted by the ATO to allow mid-tier accounting firms to adapt to the new auditor independence standards.

The SMSF Association has called on the ATO to take a reasonable and practical stance with regard to the enforcement of the new independence requirement the amended APES 110 standard has imposed on auditors, with many firms requiring a transition period to make significant changes to their business models as a result.

“We’ve called on the ATO to provide a sufficient transition period here to allow mid-tier accounting firms in particular to change their business models. [It means] they may have to engage an audit firm to audit the self-managed super funds,” SMSF Association deputy chief executive and policy and education director Peter Burgess revealed during his presentation at the Tax Institute 2020 National Superannuation Online Conference today.

Further, Burgess said the association had approached the ATO specifically because it is the regulatory body that will be enforcing the new independence standards to which auditors must now adhere.

He noted the ATO has already stated it will apply a lenient compliance approach to the situation in the immediate term.

“The ATO has announced it will not be looking to apply compliance resources in this income year to [ensure] these standards have been complied with, but they will be expecting self-managed super funds to comply with these standards in the next income year,” he said.

The association has estimated the change will have a significant effect on the sector, he added.

“Given that we think around 40 per cent of SMSFs currently have their fund audited by a mid-tier accounting firm that would also be preparing the financial statements for the fund, and are using [Chinese] walls to separate those activities, this has the potential to be quite disruptive,” he noted.

The amended independence standard dictates a firm can produce the financial statements for an SMSF, as well as perform the audit, only if the financial statements prepared are the result of a routine or mechanical service.

“I would say that there are very few instances where that would be the case [seeing] they’ve defined a routine or mechanical service as situations that require no professional judgment by the accounting firm and the trustees take responsibility for the financial statements and transactions,” Burgess said.

It has already been forecast that the new independence standard will force up to 200,000 SMSFs to change auditors.

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