The new APES 110 Code of Ethics for Professional Accountants has many ramifications for SMSF trustees... and Accountants have an obligation to notify clients of changes that may affect their audits. Under the new code, accounting firms providing administration for SMSFs cannot also provide audit services for that client, not through a Chinese wall, nor by establishing a breakaway company. Reciprocal arrangements are also not allowed. The upshot of this is that hundreds of thousands of SMSFs will need to find new auditors, creating something of a shake-up in the industry and impacting working relationships, workflow, and quite possibly the cost and timing of audits over the next couple of financial years. Notifying Trustees SMSF clients will need to be advised of the changes to the auditor independence standards and how their funds may be be impacted. Accounting firms providing administration and audit services for SMSFs must inform trustees of the need to appoint a genuinely independent fund auditor. Who appoints the Auditor While the trustee is required to appoint the auditor for the fund, in practice Accounting firms tend to make recommendations and/or the decision on which auditor to use. Pressures on costs and efficiency mean firms want to work with an auditor who integrates with their internal systems to facilitate smooth transfer of data. The audit process needs to be efficient and cost-effective for the bulk of a firm's funds rather than piecemeal. Expert professional judgment is also a crucial selection criteria as firms want to embrace the benefit of a fresh pair of eyes looking over their funds, hopefully from an auditor who is reputable, wise and pragmatic. Importance of Communication It is good practice for Accounting firms to advise their clients of who they have appointed as the auditor and also the reasons behind the decision to make that appointment. Clients will trust and appreciate the recommendation when they understand why that auditor will provide a quality service and the value of this in protecting their life savings. Good communication between an auditor and your team members is also important as a good working relationship promotes understanding and sensible resolution of queries as they arise. An independent view is after all a healthy approach and improves the service your firm offers its clients. Audit is not a commodity The process of re-evaluating your audit arrangements is also an opportunity to re-think the value you get from that arrangement. Independence brings a range of benefits and using a specialist auditor can improve the brand reputation of your firm. As SMSF reforms become more sophisticated, there is real value in harnessing the expertise of a specialist auditor. Recent court cases have shown that as soon as something goes wrong, the auditor is the first to be questioned. Anonymity in auditors doesn't help either accounting firms or trustees, rather trustees have a responsibility to know what's going on. And firms have a responsibility to be accountable for making considered selection of the auditor they put forward to their clients. Be on the front foot If the new Code means you need to adjust audit arrangements, be on the front foot. Start choosing your new auditor soon. Make wise decisions.
If your firm needs to reconsider audit arrangements in light of the new Code, we'd be happy to talk with you.