The ATO has again warned SMSF auditors about the threats to independence from, and potential consequences of, reciprocal auditing arrangements.
The ATO says that reciprocal auditing arrangements – where two SMSF auditors agree to audit each other’s funds – are an “area of concern” and a “threat to independence”.
“The view of both the ATO and ASIC is that no safeguards can reduce the threats to independence arising from this type of arrangement,” said the ATO.
“Another reciprocal arrangement of concern is where two professional accountants who are also SMSF auditors, prepare the accounts for a number of SMSFs and enter into an arrangement to audit the SMSFs of each other’s clients. Safeguards could include ending the reciprocal arrangement or spreading these referrals to a number of different SMSF auditors.”
“Approved SMSF auditors who continue to engage in reciprocal auditing arrangements will be subject to increased scrutiny,” warns the ATO.
“Referral to ASIC may result if we consider SMSF auditors have failed to meet the independence requirements.”
According to the ATO, a reciprocal audit arrangement could include threats to independence – under Accounting Professional and Ethical Standard (APES) 110 Code of Ethics for Professional Accountants – of self-interest, familiarity, and intimidation.
The ATO also says it is a “blatant breach” of the auditor independence requirements for an auditor to audit their own SMSF, or the fund of a close family member. ASIC – which regulates SMSF auditors – has been disqualifying a number of SMSF auditors for auditing their own fund or the funds of relatives.