ATO seeing ‘big shift’ with in-house audits

“We have a strong focus on making sure that our staff have the capability to deliver a strong audit program going forward,” said Mr Delahunty.

While the ATO has only sent through 11 auditor referrals to ASIC this year, which is lower than in previous years, this was partly on the basis that the ATO’s compliance program was reduced, he said.

Following the recent ASIC action against 18 SMSF auditors engaged in reciprocal audit arrangements, Mr Dealhunty said independence issues remain a big focus area for the ATO.

“Despite the fact that we have had ongoing reviews and have been around reciprocal orders, we still have a number of arrangements that still are in place out there, so we’ll continue to focus in on that,” he said.

In-house audit issues where assurance and non-assurance services are provided by auditors within the same firm will also be a focus area going forward, he cautioned.

“We’ll also be looking at the general rules around single referral source. Auditors with a single referral source are obviously going to attract some attention, and that’s the third part of independence we’re going to home in on,” he said.

Mr Delahunty said the ATO has been monitoring the shift in SMSFs switching to a new auditor this year, which has increased off the back of changes to the independence requirements.

“Generally, we tend to have a 15 to 20 per cent shift for funds from auditor to auditor each year. This year, due to the in house auditor requirements, we’ve got an increase. Obviously, we’ve haven’t reached the whole year in terms of the audit cycle but there’s an indication that there’s been a strong shift in terms of some of these funds shifting auditor. We’re up around 30 per cent so far,” he said.

“Whether that’s maintained throughout the year, we’ll keep an eye on that. I think that’s a good sign as to how we expected the industry to respond to those changes,” he said.

Mr Delahunty noted that there has, however, been an increase in auditor contravention reports this year.

“Generally, our numbers sort of sit between 2 and 2.5 per cent for funds audited that have a contravention report, now we’re creeping closer to 3 per cent this year,” he said.

“It’s not necessarily specific to the independence issues, but you would think that aspect of that is going to be attributable to the shift in the funds to a new auditor and a fresh set of eyes bringing up issues.”