A specialist SMSF auditor has warned practitioners of certain significant risks their firms might face should they commit to a audit pooling arrangement in order to comply with the amended auditor independence standards contained in APES 110.
“[Pooling] is not without its practical risks. The first thing I thought of was what if you get really horrible funds to replace all your lovely ones you’ve been [cultivating] for the last however many years,” Super Sphere director Belinda Aisbett said during her presentation at last week’s SMSF Association Virtual Technical Summit 2021.
“You dump your perfect funds into the pool, what if you get a whole lot of crud back out? Speaking from experience, we get lots of referrals from accountants that perhaps have never had a proper audit done and those files in those funds are really hard going and really frustrating to deal with.
“So you do need to be prepared, if you’re going to dump your funds into the pool, what you get out is possibly not going to be great quality and certainly might not be to the quality and standard that you’re used to.”
Further, Aisbett pointed out pooling arrangements may involve establishing new working relationships with unfamiliar accounting practices and this could result in additional challenges for the audit firm.
“You will also have to consider that you will now be dealing with multiple accountants and they may not have the same quality standards as you or the same expectations as you,” she said.
“For the independent auditors who have practices similar to mine, you’ll be well accustomed to the phrase ‘oh, the last auditor never asked for that’ [or] ‘nobody’s ever asked for that before, Belinda, why do you need it’ [or] ‘no one cares if the accounts balance or not, Belinda, why are you being so picky’.
“You will get those types of accountants in a pooling arrangement and they will be challenging to deal with.”
She emphasised auditors always need to guard against the possibility of having arrangements like this result in independence breaches due to the revenue being generated from one referral source.