The use of low-cost audit service providers may create independence risks for trustees and practitioners, according to an SMSF auditor.
Saul SMSF founder and managing director David Saul noted many accountancy firms had been forced to outsource their auditing requirements, primarily as a result of shortages in skilled professionals and rising service and living costs.
He said these arrangements may be undermining the purposes for which the auditor independence standards stipulated in the APES 110 Code of Ethics for Professional Accountants were originally introduced.
“The independent audit process is extremely important to the financial health of SMSFs. Recently we’ve had a number of inquiries from accountants who have used these cheap large-scale [auditing services],” Saul told selfmanagedsuper.
“[The accountants] have come to us and said: ‘We’re really concerned about the independence of this arrangement and we’re happy to pay more for an open, transparent, independent relationship.’
“Too often there’s these large administrative overseas service operators and the auditor is reliant on that source of funds.
“The offshore provider will say: ‘We’ll make it look like you’ve prepared the accounts, the tax return financials.’ Somebody working [at the auditing service provider] will do all that work and then they get somebody within the firm to [sign off on the documents].
“I think the biggest concern is this artificial view that apparent independence exists. I think there’s a risk of recreating a new type of Chinese wall there.
“The old type of Chinese wall was you get one of the old partners sitting across the hallway from somebody else doing the audits for the rest of the principals in the practice and we all know that was open to abuse.”
He said the adage ‘you pay for what you get’ holds true when it comes to the costs of specialist SMSF auditing services.
“You go out to the marketplace and I see it all the time, it comes up on my social media, people advertising audits for $250, and you start to think: ‘What level of work is being done for that?’” he noted.
“The very first thing that’s lost … is a relationship with the auditor. If there’s no relationship with the auditor, who can the trustees, accountants and administrators chase when something goes wrong?
“Even worse, what if your auditor is overseas? Good luck trying to track them down.
“And I know for a fact that those using [lower-cost auditing services] say: ‘We’ve got no one to talk to. There’s no one. There’s no relationship,’” he said.