ATO, Auditing

ATO confirms independence threat details

auditor independence threat

The ATO has confirmed what may threaten auditor independence when a large volume of business comes from a single referral sources.

The ATO has confirmed the level at which an audit referral arrangement will not be considered an independence threat in its first update to recently released SMSF auditor independence standards.

In an update released on its website, the regulator noted it had revised the section of the guidance, under the heading Auditor Independence – Issues for firms when re-structuring, related to reciprocal auditing arrangements and referral sources.

While retaining its original statements that the APES 110 Code of Ethics for Professional Accountants does not specify the number of referral sources or set percentage of fees from referral sources that are required to reduce independence threats to an acceptable level, the ATO expanded on its view about independence threats from a large, single referral source.

“The update makes it clear that where a well-established firm mainly derives its income from providing auditing services, as a guide, if the fees generated from one referral source are less than 20 per cent of the firm’s total fees, we would not consider this in itself to create an independence threat. Other factors may still be relevant in evaluating the level of any threats to independence,” the ATO said.

This update is a slight shift from the previous wording which stated “we would not consider there to be an independence threat if the fees generated from one referral source are less than 20 per cent of the firm’s total fees” but did not mention any other factors that may create a threat to independence.

The ATO highlighted that publishing its audit independence guidance online in mid-March had allowed it to make these type of dynamic changes in response to changes, emerging issues and future guidance needs to assist SMSF auditors.

The 20 per cent threshold has been identified as a possible advantage for larger accounting and audit firms by an audit referral expert while an SMSF auditor regarded the figure as a point at which auditors should be cautious about their independence.

In a further update, the ATO has also released a new version of the form that requests the rollover of the whole balance of a member’s superannuation benefits between funds that will work with the extension of SuperStream to SMSFs.

The new form replaces two previous forms and enables super fund members to request a rollover of their whole super balance to either an SMSF or other eligible super entity. The form also allows the transferring trustee to optionally request proof of identity documents to confirm the member’s identity and their SMSF bank account information to confirm the destination of the transfer of super money.

“This information may assist transferring fund trustees in the management of security and fraud risk in an SMSF rollover,” the ATO stated.

The regulator add where trustees made a request it had to take place within five business days of receiving the rollover request and the rollover must be completed within three business days of receiving the additional information.

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