SMSF auditors who generate a sizeable portion of their income from a single source should engage in an external review every five years, but avoid rules of thumb in how they undertake that process, an industry expert has warned.
Telstra senior tax adviser and Auditors Institute members’ forum moderator Michael Gilmour noted the issue of referrals from a single accounting firm and the potential of intimidation risk or undue influence had been a frequently raised topic in forums, particularly where the referral relationship had gone on for a number of years.
“APES 110 Code of Ethics paragraph R410.14.2 states that if over five consecutive years more than 30 per cent of audit fees are from one referral source, then the suggestion is we have an independent review of the audit opinions that are to be issued for the fifth year,” Gilmour said at the Auditors Institute Auditors Day 2025 in Melbourne last week.
“The pertinent question is: who is going to pay for this independent review? Realistically, the client is not going to pay for it and is not going to be interested in paying for it, so it’s a cost the auditing firm is going to have to wear for themselves.
“Is every single audit client from a firm that represents more than 30 per cent of our audit base subject to a new review? I don’t think that is what is required, but APES 110 doesn’t really spell out what is required here.
“We would need a sample and that depends on how big the overall population is, and the independent review does not have to be a full-throttle rework of the entire work papers, just a review of the work that has been undertaken.”
He added that while the process was not clearly defined, auditors should still carry it out and not rely on arbitrary measures of independence.
“One member has put it to me that there is a rule of thumb where roughly 1 to 2 per cent of audits you issue should generate an auditor contravention report and if this is the case, especially in respect to audits from one source, isn’t that indicative that we are truly independent,” he said.
“To my mind it’s a strong indicator and very supportive of the fact that you’re independent, but APES 110 doesn’t make any reference to such rules of thumb.
“So this discussion in respect of the one source of referrals that has been consistently providing 30 per cent of your fee base over five years or more comes with a recommendation of an independent review, which comes directly from APES 110.”
