Genuine audit independence is a focus area for the ATO this year and with 31 auditors referred to ASIC – up from 22 last year - they are certainly serious about the function of the auditor.
A key issue is referral networks and how commercial interests have the potential to compromise professional standards.
Ms. Kasey Macfarlane (until recently, the ATO SMSF Segment Assistant Commissioner) said they are focusing on situations where there “is a heavy reliance on fees generated by a particular source or where an auditor has a close personal or business relationship with that referral source.”
The ATO has contacted auditors it suspected were preparing accounts and financial statements for funds they also audited.
In sole-practitioner situations where the staff prepare the financial statements and either the auditor or a senior staff member sign off on them, the ATO’s view is that this creates an independence issue because the staff report directly to a sole-practitioner auditor.
Similarly, there are questions raised when a medium sized firm uses an interstate office or a so-called Chinese Wall between divisions to conduct their own audits. If the auditor has a “high reliance of fees by a particular source” the ATO is concerned. Is there genuine audit independence when there is an implicit conflict of interest underpinning the working relationship?
We believe such audit relationships are missing a key point: genuine auditor independence gives protection and peace of mind. It is in your interests for your auditor to leverage their professional judgement and give impartial advice. Ultimately this is what protects your firm, your clients and your reputation, not to mention reduces the likelihood of litigation in the event of a breach. Why would you want to compromise long-term security and the benefits of getting it right for a short term gain or convenience in referring audits?
At Saul SMSF we encourage accounting practices to embrace the value that comes with real independence. It’s in your interests to tear down the Chinese Wall and benefit from genuine audit independence.