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Pooling SMSF Audits doesn't pass Independence test

The selfmanagedsuper publication has this week reported that establishing pooling arrangements among several different accounting firms will not be seen as a satisfactory method of complying with the amended auditor independence standards. A pooling arrangement is where a group of accounting firms that have previously relied on Chinese wall arrangements to meet auditor independence requirements, place their SMSF audit clients into a pool to have them re-distributed among the members of group. The ATO is aware of the accounting firms looking to use pooling arrangements as an auditor independence compliance measure and has indicated it will be applying increased scrutiny to these situations.

It is incorrect to assume that a pooling arrangement will meet the new Independence standards. The misunderstanding seems to have arisen from the safeguard that referral or reciprocal arrangements are allowable for accounting firms providing administration and bookkeeping services as well as audit services as long as the referrals are sourced from a good variety of external accounting firms. However, the assumption that this safeguard applies to a pooling arrangement is flawed logic due to the inherent characteristics of a pooling arrangement itself, according to the article in selfmanagedsuper magazine: “The application of that safeguard in the reciprocal arrangement is completely different to applying it in a pooling arrangement. The reason is that the safeguard in the reciprocal auditing example doesn’t include distributing clients to auditors who are in a common grouping arrangement with that SMSF auditor.” “So the auditor referred to in that example of reciprocal arrangement must be fully independent and the overriding objective of a pooling arrangement is fee retention or fee agreements which means that the threats to independence can’t be properly addressed.” “The other issue to consider here is where the pooling arrangement may be of such a size that then the cooperative becomes a network.” Either way a pooling arrangement does not provide an auditor independence solution compliant with the new Code. It is not a matter of having a "variety" or "a particular number" of auditors in a group uses that proffers independence, but rather that there the auditor is fully independent and not subject to influence by fee arrangements.

Pooling audits does not equal genuine audit independence.

Read the full selfmanagedsuper article here.

SaulSMSF has Increased capacity

With the ATO focussed on better governance of the SMSF industry, including enforcing independent audits, Saul SMSF has moved to a new larger office to increase our capacity to undertake audits for Accounting firms who want quality, independent audits. 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.





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