The ATO has stated it will not be enforcing the new auditor independence standards for the 2021 financial year and will instead allow a transition period for accounting firms and auditors to adjust to the changes.
In an update on its website, the regulator said firms would not be immediately penalised for not complying with the recently restructured APES 110 Code of Ethics for Professional Accountants, which imposes restrictions on the preparation of financial statements and audits being undertaken by the same party.
“Our approach to compliance with this independence issue during the 2020/21 income year is to provide support and guidance to assist auditors [to] comply with the requirement of the new code,” it said.
“This will give firms time to consider if a restructure of their firm or audit engagements is necessary.”
Firms needed to ensure they avoided potential independence issues such as entering into reciprocal arrangements when restructuring or making changes to their audit engagements in order to comply with the new auditor independence standards, it pointed out.
It noted firms found to be in breach of the new code for audits completed from 1 July 2021 onwards could be referred to the Australian Securities and Investments Commission (ASIC).
“[F]or audits completed after 1 July 2021, firms will need to comply with the new code. This includes audits they have completed for 2020/21 and future financial years and any audits that need to be completed for earlier financial years,” it added.
“If we find firms are breaching this independence standard after 1 July 2021, we may refer the auditor to ASIC for further action.”
Last week, the ATO 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 was unlikely to be considered a successful strategy to adhere to the new auditor independence standards.