In the first half of the 2018/2019 financial year, the ATO referred 37 self-managed super funds auditors to ASIC for independence breaches. This operation was part of the ATO crackdown aimed at reviewing SMSF auditors in an attempt to unearth an intentional failure to comply with the SIS Regulations.
Obvious Independence Breaches
One of the most significant independence issues the ATO is focused on is where the self-review and self-interest threats are present. This can include situations where the SMSF auditor is a registered tax agent involved in preparing the accounts and statements as well as auditing the SMSF. Firms that provide financial planning advice to SMSF’s are not permitted to audit the super fund as per the ATO and independence guidelines.
There has also been an increase in reciprocal auditing arrangements, which is where two auditors who have their own SMSF agree to audit each other’s funds. This has been a particular focus of the ATO in recent times. In the view of the ATO and ASIC, there is no safeguards that can reduce the threats to independence arising from a reciprocal auditing arrangement. The main threats to independence a reciprocal auditing arrangement include:
- A SMSF auditor could be included to vary their audit opinion or not report a contravention if they believe this will influence the outcome of their own audit or a potential loss of business.
- As the auditor will have a close relationship with the other auditor this may coerce the second auditor to ignore issues or to undertake a substandard audit.
- There is also a chance of intimidation due to the other auditor’s knowledge or their contacts within the industry may influence the auditor not to report certain issues and apply less scrutiny.
Another issue in the ATO’s focus is where firms offer both financial advisory services and audit services to the same client. This issue is more prevalent in small firms with only a few directors because it is almost impossible to put appropriate safeguards in place to ensure there are no independence issues.
There is a suggestion that providing a client with taxation and accounting services along with financial planning and audit services, can create a self-review threat.
Key Points
There is no doubt SMSF Auditors are under the spotlight with the regulators. Not to mention the ongoing training, maintaining quality audit records, and the higher costs technology, and PI insurance is putting a strain on SMSF Auditors.
It is clear from the ATO crackdown that independence needs to be taken more seriously, especially considering auditor independence is the clearest and strictly applied rule a SMSF auditor must adhere to.
At AudityourSuperfund we only do SMSF audits, and therefore our systems and processes are structured for a great audit at a fair price. We have the scale and size to make SMSF audits a risk free choice for your business. We will reduce your risk whilst helping you make your SMSF offering to clients far less stressful.
Call Michael on 0433 271 676 or Ben on 0402 121 509 to find out how we can assist you.