Accounting firms looking to rely on an independent third-party review or the fact they are only performing a routine and mechanical service in order to retain their existing SMSF audit work within the amended auditor independence standards will face a significant increase in their documentation requirements, specialist practitioners have said.
ASF Audits head of education Shelley Banton told attendees of the latest Accurium technical webinar elements such as the circumstances surrounding the audit client relationship, for example, the client being an old university friend of the accounting firm partner, will need to be documented to adhere to the revised independence standards in the future for a legitimate third-party review to be performed.
“Absolutely [these things will have to be put down in writing] because what you need to have is an independent informed third party who is going to review the audit file, be able to assess the independence issues that may exist in the audit file and then actually come to a conclusion that this is an independent situation or at least it looks like it’s independent as well,” Banton said.
“So you’ve got [to establish] that independence of mind and independence in appearance that needs to be applied to this and the only way that you can actually evaluate whether that is or isn’t the case is to actually look at what’s on the file.”
She added this process has to be applied to every SMSF audit engagement, which could lead to a significant increase in administration and documentation for the accounting firm.
Accurium head of education Mark Ellem noted the amount of required documentation will also rise for firms wanting to prove their part in the accounting and administration of an SMSF is routine and mechanical.
“[The standard] talks about the auditor requiring to document the trustees’ ability to take responsibility for the management of the fund and them making all of the decisions,” Ellem said.
To this end, Banton emphasised having a signed trustee representation letter, a set of signed financial statements or having the trustees undertake a course covering their responsibilities will not constitute proof of a routine and mechanical procedure by the accounting firm.
“It’s just getting virtually impossible to keep it all in-house and why would you want to go through that hassle?” she said.
“There is a great quote from Warren Buffett that said ‘if you’ve got a leaking boat, abandon the leaking boat and get a new one rather than trying to plug the holes up’.”
During the same session it was determined arrangements where a number of accounting firms pooled their SMSF audit clients were unlikely to provide a solution that would facilitate adherence to the amended independence standards.
