Reciprocal deals in focus

Reciprocal auditing arrangements

The ATO has recently taken serious compliance action against several SMSF auditors engaged in reciprocal auditing arrangements.

The ATO has demonstrated how seriously it considers reciprocal auditing arrangements as a threat to professional independence, with a number of SMSF auditors recently referred to the Australian Securities and Investments Commission (ASIC) for further investigation over these situations.

The reciprocal arrangements under scrutiny are those where one auditor performs an audit on another auditor’s SMSFs and vice versa.

“We’ve actually recently referred 17 auditors to ASIC for continuing to engage in those reciprocal auditing arrangements despite warning them by letter twice about our concerns about those arrangements,” ATO SMSF auditors portfolio director Kellie Grant revealed to delegates today at the SMSF Virtual Day 2021 hosted by Smarter SMSF.

“So we do take those arrangements quite seriously.”

Grant took the opportunity to emphasise the regulator’s stance is unequivocal when faced with these situations and that there is only one available solution to the involved parties.

“There are no practical safeguards that can be put in place to reduce those threats [present under these circumstances] to an acceptable level so the parties should just end or decline the audit engagement,” she said.

According to Grant, other ASIC referrals had been also been made with regard to referral arrangements between auditors.

“We referred two auditors to ASIC last year who were auditing around 1000 funds each and they were all coming from just the one referral source,” she said.

“Now these auditors ended up voluntarily deregistering, however, ASIC did agree with our findings that these two auditors were breaching the independence standards as the self-interest, intimidation and familiarity threats arising from the arrangements were just not [at] an acceptable level.”

She advised accounting firms must take appropriate action in the lead-up to 1 July to eliminate independence breaches or they will face more serious regulatory action.

“Come 1 July if firms haven’t restructured, and we do identify that, unless you’ve got a really good reason as to why you weren’t able to restructure in time, some sort of exceptional circumstances as to why you weren’t able to do that, then we will be looking to take appropriate compliance action and that could result in a referral to ASIC,” she said.

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