Audit fee threshold rejected again

audit fees threshold

The proposal to introduce a threshold on audit fees originating from one referral source has been opposed by the SMSF Association.

The SMSF Association has added its voice to the number of sector stakeholders opposing the proposed 20 per cent limit on audit fees originating from one referral source as part of the amended auditor independence standards defined by APES 110.

Specifically, the industry body expressed its members’ concerns about exactly when the audit fees threshold would be applied during a particular financial year and has recommended the introduction of a two-year period in which auditors must assess the fees they receive from a single referral source.

“We are concerned that an auditor may take genuine steps to comply with the standards, yet still fall foul of these provisions if a regulator or a court were to apply the threshold at a different point in time,” SMSF Association chief executive John Maroney said.

“An auditor may, in good faith, undertake an assessment of their likely fee income and sources for the year at the start of a new financial year. Although fees, including referral fees, for the previous year may assist in a budgeting or planning process, there are no guarantees that the same level of work will be received the following year.

“There are various external factors that will impact the referral of audits that may not be known by the auditor. An unexpected increase or decrease in referrals may occur during the year. Indeed, fluctuations are not uncommon. It is the extent or degree that often cannot be determined.”

According to Maroney, the association’s members are also worried as to how they should go about assessing fees from one referral source, especially in situations where a specified number of funds are nominated for audit in the initial stages of referral discussions, but do not come to fruition when the work is performed.

Further, practitioners expressed angst regarding the possibility of having to reject all audits from one referral source should a hard threshold be introduced.

“The concern is that the regulator’s intent for these proposed changes, and industry’s interpretation of them, may differ to any further interpretive guidance contained in a future version of the independence guide. Future guidance may result in any thresholds that are codified evolving into a hard threshold test,” Maroney said.

The industry body also acknowledged the increased complexity a fee limit would create, which would result in a rise in operating costs for accounting firms.

To avoid some of these outcomes, it called for the retention of the current framework and standards with regulator guidance to address particular concerns, and for a fee threshold of 30 per cent to be applied should the need for a limit be required.

The industry body’s stated position comes after four independent audit firms and an audit association rejected the proposed fee limit from one referral source.

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