Can SMSF Auditors continue reciprocal arrangements under the new Independence Code? The view of both the ATO and ASIC is that threats to independence arising from reciprocal arrangements are so significant that no safeguards can reduce this threat to an acceptable level. In effect, reciprocal arrangements are no longer allowed under the new Independence Code. The ATO has said that SMSF auditors who engage in reciprocal auditing arrangements will be subject to increased scrutiny and referral to ASIC may result if the auditors have failed to meet the independence requirements. What constitutes reciprocal arrangements? A reciprocal arrangement arises where:
two professional accountants who are also SMSF auditors enter into an arrangement to audit the SMSFs of each other’s clients
different partners within a firm agree to audit funds from one another's clients under a Chinese wall arrangement
a breakaway company is established to continue to perform SMSF audits for clients serviced by their former employer
or, pooling referrals between a group of SMSF auditors who remain dependent on one another for referrals and therefore fees.
Why are reciprocal arrangements out? A major risk that relates to the performance of approved self-managed super fund (SMSF) auditors is auditor independence. A breach of the requirement for auditor independence occurs where an SMSF auditor has a close relationship with, or a high regard for, the other auditor who may therefore be influenced to ignore certain issues or to undertake a cursory and inadequate SMSF audit. This is outlined in the Code as the threat of Familiarity and in effect points to the idea that too much familiarity may create a situation where some professionals feel they have the auditor "in their pocket". Other threats to independence detailed in the new Code include:
self-interest – an SMSF auditor may be influenced to vary their audit opinion or not report a contravention if they perceive this will influence the outcome of the audit on their own fund or if they fear a potential loss of business as a result
intimidation – the other auditor’s knowledge or their industry contacts may influence the auditor to not report certain issues and to apply less scrutiny to the audit.
Chartered Accountants recently revisited the purpose of independent audits: “Independence is essentially so that the [SMSF community’s] stakeholders and, of course, first and foremost the SMSF trustees have confidence they’re being served objectively and that [the audit is] a true line of defence beyond other advisers that are involved.”
Saul SMSF has moved to a new larger office to increase our capacity to undertake audits for Accounting firms who need to revisit their audit arrangements in light of the new Code. All audits are conducted in our office in Australia by our quality expert team.
Contact us by reply email or call on 1300 551 261 if you would like to find out more.