Auditing, Compliance, SMSF

Auditor independence issues persist

Auditor independence

The ATO is continuing to identify cases where auditors are breaching the independence standards outlined in APES 110 and failing to meet their regulatory obligations.

Auditor independence continues to be an ongoing concern for the ATO despite a restructuring of the independence standards in 2020, with the regulator intending to apply additional scrutiny in this area in the coming financial year.

“I wouldn’t think we would need to be speaking about auditor independence three-plus years after the independence rules changed, but the ATO has identified that they are still seeing a lot of in-house audits, which were essentially kicked out a few years ago,” BDO superannuation partner Shirley Schaefer told delegates at the SMSF Association Audit Day held last week.

“The ATO doesn’t believe in-house audits can be done at all. Apparently in these situations, auditors are making no assessment or an incorrect assessment of what constitutes routine and mechanical processes.

“A large majority of audit firms or firms that did do in-house audits outsourced all of their services when these rules changed, but the ATO is still seeing it, so they’re still checking it.”

Schaefer took the opportunity to remind SMSF auditors of specific risk areas highlighted by the ATO where auditors are not fully meeting their regulatory obligations.

“Reciprocal audits – direct swaps of audit portfolios. [For example], auditor A does auditor B’s [audit] and vice versa. The ATO don’t believe that there’s any way that you can do that without impairing your independence,” she said.

“So it’s important that if you’ve got a reciprocal audit or arrangement with somebody, you actually document why you believe you’ve met the independence requirements.”

She also noted that although relying on a single referral source for audit revenue is not inherently problematic, it may still pose a risk to an auditor’s independence.

“If you’re getting all of your revenue from a single source and they suddenly turn around and take that away from you, that’s going to potentially impact your independence. Will you issue a qualified audit report if they don’t want you to?” she said.

“The pooled or broader reciprocal arrangements are not something that the ATO is focusing on just now, but they will get to it. They will look at these pooled arrangements that a lot of firms have entered into and they are going to check if they are managing independence and what safeguards are in place.”

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