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Auditor angst over fee threshold

auditor independence fee

Four specialist SMSF audit firms have lodged a joint submission to the Accounting Professional & Ethical Standards Board challenging its proposed auditor independence fee threshold.

A group of four specialist SMSF audit firms have put together a joint submission to the Accounting Professional & Ethical Standards Board (APESB) raising concerns over the proposed fee-related provisions to be included in APES 110 as part of the amended auditor independence standards.

The APESB is proposing to impose a 20 per cent limit on fees from a single referral source as an independence parameter and is currently calling for industry feedback about the matter.

In response, Elite Super, Tactical Super, Peak Super Audits and Apex Super Audits have highlighted three major objections to the board’s proposal.

The first objection is if the APESB imposes a 20 per cent fee restriction to improve auditor independence in the Australian market, a discrepancy between international accounting standards and Australian accounting standards will be created. To this end, the international standards currently dictate auditor independence will be compromised if 30 per cent of a practitioner’s revenue comes from one referral source.

“If the ATO or the APESB have data that illustrates better compliance at 20 per cent versus 30 per cent, then they should release that data, otherwise Australia should just stick with the international standard of 30 per cent,” MyWorkpapers Australia general manager Kevin Bungard told selfmanagedsuper.

The group’s second objection is the inconsistent treatment of fee volume from a single referral source versus fees derived from single clients. Currently revenue from a single client is considered an independence threat if it represents 30 per cent of the firm’s revenue.

“I find it very interesting that the 20 per cent benchmark is specifically targeted at referral sources, while the existing 30 per cent benchmark remains relevant for single clients. I don’t feel that there has been any demonstration by APESB that a single referral source is a greater risk to independence than an individual client, which really asks the question of why a lower referral source benchmark is appropriate or desirable,” Apex Super Audits managing director Jacob Kewley noted.

“It seems apparent to me that dependence on a single revenue source ultimately present the same threats to self-interest and intimidation. We really need more consultation and insight from APESB before pressing ahead with codification here.”

The final objection the quartet of audit firms raised was the arbitrary nature of the 20 per cent fee limit and the potential it will have to disadvantage smaller organisations.

“There is no clear justification for selecting 20 per cent as a codified benchmark for referral fee dependency. Introduction of this benchmark will impose hardship upon smaller practices and should only be adopted after full consultation with the industry, particularly with smaller players that have navigated this territory and established reputations of excellence,” the submission said.

To this end, Elite Super managing director Katrina Fletcher pointed out the additional administrative burden the proposed threshold will cause.

“I understand that we need a limit, but if it is too low, it is just going to introduce more overheads, red tape and disruption and increase costs in an industry that is already absorbing huge changes this year,” Fletcher said.

Auditors have a week remaining to make a submission to the APESB on this matter and should go to https://apesb.org.au/fee-related-provisions-in-the-code/ if they wish to do so.

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