The ATO’s audit independence guidance will finally “put to bed” the idea data feeds and automated software might enable audits to be done in-house, a technical expert has said.
Pointing to guidance recently released on the regulator’s website, ASF Audits head of education Shelley Banton welcomed the clarity provided by the ATO in relation to its stance on data feeds and automated tools within the requirements of the new APES 110 Code of Ethics for Professional Accountants.
Firms relying on the use of such tools to prove the administration and financial reporting work completed for a fund was of a routine and mechanical nature, ultimately allowing them to continue to perform the fund’s annual audit, would have great difficulty meeting the ATO’s requirements, Banton noted.
“Initially we were hearing about discussions that said where all of a client’s assets were on data feeds, that might actually constitute a routine and mechanical service under the new independence requirements,” she said today during a webinar hosted by Class and ASF Audits.
“[However] data feeds, technology, asset allocation or even specific SMSF software has nothing to do with the service being routine or mechanical.
“The ATO has addressed data feeds in their guidance statement and they’ve actually outlined some specific situations that firms have to avoid.”
She pointed out the key factor to keep in mind in most scenarios involving data feeds and automated software was that it would still be the accountant who would in fact be taking management responsibility for the fund.
“The reason for that is even if a data feed is in place for a full year, the software doesn’t code automatically. There are still transactions to be matched, processing rules to be established and there’ll be some behind-the-scenes adjustments required as well,” she said.
The ATO’s detailed requirements highlighted the near impossibility of firms being able to prove they were not ultimately responsible for the management of the fund, she noted.
“I guess the first rule is the client must be responsible for making all decisions in the preparation of those accounting records and financial statements, and the second rule is don’t forget rule number one,” she added.
In its guidance, the ATO also highlighted the risks within audit pooling arrangements that some firms may look to use to sidestep the costs of restructuring while complying with the amended auditor independence standards.