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Independence breaches redefined

Updated: Jul 17, 2019

ATO targets firms who provide both SMSF advice & audits

Independence is a key issue in the ATO Compliance Program and SMSF advisers who also conduct audits face a high risk of being targeted.

Reciprocal Auditing Arrangements

Revenue streams through close association and/or reciprocal auditing arrangements are an area of renewed focus for independence breaches. This comes as ASIC recently announced that seven SMSF auditors with independence issues were either deregistered or had a condition placed on their registration.

ATO risk profiling can now determine whether an SMSF auditor is auditing their own work or a related party fund. The absence of auditor contravention reports can also be detected and may raise questions on a possible lack of SIS knowledge.

Separating Advice and Audit

Independence issues frequently arise when firms provide both financial advisory services and SMSF audit services to the same client.

In a situation where the auditor’s income is directly linked to the financial advice given, the SMSF auditor would need to consider declining the audit engagement. Any arrangement whereby remuneration for the auditor is linked to SMSF financial advisory service, such as recommendation of investment products raises questions about self review. Referral associations between or within firms, and/or reciprocal arrangements can also compromise self review and genuine audit independence.

Stop It or Cop It

Where genuine  independence is threatened and there are insufficient safeguards in place to mitigate these threats, the only possible action is to withdraw from either the administration or audit engagement. The ATO's warning is that firms who give SMSF advisory services and also conduct audits without proper independence safeguards in place, should stop it or cop it.

At Saul SMSF we encourage a wise approach to genuine audit independence to safeguard all parties.

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