Outsourcing not audit panacea

Outsourcing auditor independence

White-label or outsourcing arrangements are not likely to provide an adequate compliance solution to the amended auditor independence standards.

Accounting firms are unlikely to be able to rely on outsourcing or white-label administration agreements to satisfy the auditor independence requirements should they decide to retain their existing SMSF audit services, a specialist practitioner has said.

“At the end of the day it doesn’t matter where the office is, where the accounts are, where the audit is being done or whether it’s white labelled or not, it’s about whose doing the work. And it’s also about that relationship between the auditor and the firm preparing the accounts,” ASF Audits head of education Shelley Banton said during the most recent Accurium technical webinar.

“So where there is any linkage there by being part of the same firm or network or whatever, with the audit only being able to be done in-house if the preparation of those financial statements are routine or mechanical and any other independence threats are reduced to an acceptable level.”

According to Banton, the way in which the amended auditor independence standard is being interpreted means even white-labelling arrangements where the outsourcing firm appears to be totally removed from the accounting firm performing the audit may not be acceptable.

Typically these agreements would see the outsourcing firm perform all of the administration and accounting functions in its own name.

“You’ve got to look at what the relationship is with this white labelling. [Even] if the accounts are going out under that [firm’s] brand … you’re not going to have a situation where that outsourcing firm is just absolutely working independently,” Banton said.

“So if there are any questions over how [certain] contributions are classified, [or if there is] any information to be provided [about a] rental arrangement … these sorts of questions are going to flow backwards and forwards.

“The outsource company isn’t going to making [those] decisions on [its] own without referring it back to the [original accounting firm] in the first place.

“So it comes down to how the relationship has been documented, what sort of safeguards have been put in place, has it been reviewed and evaluated by both [parties] and is that a routine and mechanical service that’s been provided.”

Banton has previously deemed pooling arrangements as a highly unlikely compliance solution to the amended APES 110 standard.

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