The ATO has warned SMSF auditors that, in its view, no safeguards can reduce the threats to auditor independence from reciprocal auditing arrangements.
The ATO says that “blatant independence breaches”, including an auditor auditing their own SMSF, has attracted the attention of the tax office in the past. But the ATO’s focus has broadened to include “other less obvious independence risks”.
“One such area of concern is in relation to auditors who enter into reciprocal auditing arrangements,” says the ATO.
These arrangements involve two SMSF auditors agreeing to audit each other’s fund.
“The threat to independence is akin to the scenario of a two partner practice in which one partner is asked to audit an SMSF where the other partner is a trustee.”
An ATO survey found that some auditors believe that the independence risks of reciprocal audit arrangements could be safeguarded against. But this is not the ATO’s view.
“It is the view of ATO and ASIC that there are no safeguards that can reduce the threats to independence arising from this type of arrangement.”
“Another reciprocal arrangement which raises independence concerns is where two professional accountants who are also SMSF auditors and prepare the accounts for a number of SMSFs, enter into an arrangement to audit each other’s clients’ SMSFs. Safeguards could include ending the reciprocal arrangement or spreading these referrals to a number of different SMSF auditors to minimise reliance on this source for SMSF audits. ”
The ATO views reciprocal audit arrangements raise Self-interest threats, Familiarity threat and Intimidation threat, under the Accounting Professional and Ethical Standard (APES) 110 Code of Ethics for Professional Accountants.
The ATO says that SMSF auditors who continue to engage in reciprocal audit arrangements will be “subject to increased scrutiny”, and potential referred to ASIC if the ATO considers the independence requirements haven’t been met.