Referral rules still evolving

audit referrals guidance

Further guidance on the maximum number of referrals an audit firm can derive from one source is being formulated.

The ATO has confirmed the finer details in its guidance regarding the maximum number of referrals an audit firm can receive from one source before being in danger of breaching the amended auditor independence standards are still being developed.

Speaking yesterday at the SMSF Virtual Day 2021 hosted by Smarter SMSF, ATO SMSF auditors portfolio director Kellie Grant said the regulator is in the process of formulating responses to certain specific scenarios auditing firms may be faced with regarding the make-up of their referral sources.

Grant used a very simple example to illustrate what the ATO was now examining regarding this issue.

“What happens if I’m just an auditing firm auditing 1000 funds and I’m charging the same fee for all of those 1000 funds, but … 300 [of those funds are] from one referral source?” she said.

“In our guidance, for instance, we’ve said 20 per cent is perhaps a good benchmark that you could use and over and above that you’d probably then need to look at putting in place appropriate [independence] safeguards. So in that case, what do you do with the extra 100 funds that take you above that 20 per cent or 200-fund benchmark?

“Now you can, of course, increase your referral base to reduce those risks or you can get an independent reviewer [to look over those particular audits].”

Regarding the second option, she acknowledged there is uncertainty whether all of the 100 funds putting the audit firm over the referral source threshold would need to be reviewed individually to satisfy the independence requirement.

“That’s the bit we’re still working through, whether we can look to provide any [additional] guidance on whether [a form of] sampling could be [used], like maybe every fifth fund gets a review,” she said.

According to Grant, the ATO is looking to get further guidance addressing audit referrals released to the sector some time later this year.

Concerns have already been raised about other consequences that may arise from the current referral benchmark the regulator included in its guidance.

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