The ATO has indicated its compliance activity has identified the type of practitioners who are most likely to be in breach of the auditor independence standards stipulated in the APES 110 Code of Ethics for Professional Accountants.
“The auditors we’ve looked at so far and uncovered [independence] issues for are sole practitioners. The general response that we get is that they’ve got a staff member undertaking the financial statement preparation, and the auditor is totally separate to that, without recognising that is a specific area [where] the joint accounting bodies, via the independence guide, have put out a scenario that effectively says the auditor in those circumstances can’t eliminate the threat of independence,” ATO superannuation and employer obligations director Paul Delahunty revealed at The Tax Institute National Superannuation Conference held recently in Melbourne.
“That would occur irrespective of whether they have any safeguards in place.”
Delahunty pointed out the situation has led the regulator to acknowledge it must continue to communicate with practitioners about the auditor independence standards that came into effect on 1 January 2020 and apply to audits performed from 2021 onwards.
From a whole-of-industry perspective, the ATO’s review of 60 auditors found around 50 per cent of them had compliance problems with the independence standards.
According to Delahunty, the regulator’s activities have also uncovered a gap in the expectations of the ATO and what auditors are doing in practice.
“There are some common areas that have caught our attention and they are recurring, they seem to roll on year-on-year, which is a little bit of a worry. Market valuation of fund assets and transactions is a common one,” he noted.
“Compliance with the investment strategy and whether the fund has adhered to that strategy for the purpose of [Superannuation Industry Supervision] regulation 4.09 [also] continues to be an issue.”
Other areas of concern included the existence of charges over SMSF assets and inadequate documentation for limited recourse borrowing arrangements.