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ENHANCING AUDITOR INDEPENDENCE: ATO'S ONGOING CONCERN

4 October 2023

SMSF Auditors, Beware of Independence Challenges in 2023

Auditor independence has remained a persistent concern for the Australian Taxation Office (ATO) despite a significant overhaul of independence standards in 2020. The ATO is poised to intensify its scrutiny in this critical area during the 2023-2024 financial year.

"I wouldn't think we would need to be speaking about auditor independence three-plus years after the independence rules changed, but the ATO has identified that they are still seeing a lot of in-house audits, which were essentially kicked out a few years ago," shared BDO superannuation partner, Shirley Schaefer, during her address at the recent SMSF Association Audit Day.

Schaefer emphasized that the ATO continues to have reservations about in-house audits, asserting that in these instances, auditors often fail to assess or incorrectly evaluate routine and mechanical processes. She stated, "A large majority of audit firms or firms that did in-house audits outsourced all of their services when these rules changed, but the ATO is still seeing it, so they're still checking it."

During her presentation, Schaefer also highlighted specific risk areas outlined by the ATO where auditors sometimes fall short of meeting their regulatory obligations.

One notable area of concern is reciprocal audits, involving direct swaps of audit portfolios. Schaefer pointed out, "[For example], auditor A does auditor B's [audit] and vice versa. The ATO doesn't believe that there's any way you can do that without impairing your independence. So it's important that if you've got a reciprocal audit or arrangement with somebody, you actually document why you believe you've met the independence requirements."

Additionally, Schaefer cautioned against overreliance on a single referral source for audit revenue, even though it may not inherently pose a problem. She noted, "If you're getting all of your revenue from a single source and they suddenly turn around and take that away from you, that's going to potentially impact your independence. Will you issue a qualified audit report if they don't want you to?"

While the ATO may not be actively focusing on pooled or broader reciprocal arrangements presently, Schaefer advised that auditors should anticipate future scrutiny in this area. The ATO intends to assess whether firms engaged in these arrangements are effectively managing independence and implementing necessary safeguards. SMSF auditors must remain vigilant to navigate the evolving landscape of auditor independence with precision.

Superannuation Audit Services are always and forever APES 110 independence compliant. SMSF auditing is all we do. Talk to us before the ATO talks to you.

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