The ATO has cautioned practitioners looking to establish a breakaway company to continue to perform SMSF audits for clients serviced by their former employer that such a move is unlikely to be considered a successful strategy to adhere to the new auditor independence standards.
“Auditors need to be aware … they can’t just go out and set up their own firm and then accept audits for that firm if they were previously a consultant, partner or employee of [their previous] firm,” ATO SMSF auditor portfolio director Kellie Grant said during a recent CPA Australia podcast.
“That’s because threats may exist that the auditor may not evaluate appropriately the results of previous judgments made or advice provided to clients of that firm from when the auditor was a member of that firm.”
According to Grant, the situation could lead to the auditor being too accepting of the work performed at the organisation at which they used to work.
“Particularly if minimal time has passed since they left, such as a 12-month period,” she said.
However, she pointed out this strategy could be acceptable in some circumstances.
“Independence threats arising from these types of outsourcing arrangements can be eliminated if other auditors in the [newly established] firm undertake the audit or if the auditor [who formerly worked at the accounting firm in question] can get an appropriate reviewer,” she said.
An appropriate reviewer would be a practitioner who had nothing to do with any accounting or tax work for the SMSF client, she specified.
“And if there are no other auditors to take on this work, the updated independence guide suggests that after a two-year period any independence [issues] should no longer exist, so that’s a good benchmark to use there,” she advised.
Previously the regulator stipulated the use of data feeds in the provision of SMSF administration services cannot be considered proof the process is “routine and mechanic”, thus allowing a firm to continue to perform the fund audit as well.