Lodging the SMSF annual return prior to the audit report being completed is one of the key reasons the ATO will be contacting advisers, said SuperAuditors director Shelley Banton.
“This is an unacceptable practice and a red flag to the ATO to contact the SMSF adviser. Be aware that SMSF auditors are also being urged to report this issue in Section G of the Auditor Contravention Report,” she said.
Tax agents who apply “undue pressure” to SMSF auditors to avoid reporting contraventions will also be on the ATO’s radar.
“They are interested in the percentage of ACRs lodged by the SMSF auditor as compared to all auditors (approximately two per cent). Where there are no contraventions lodged, the ATO will investigate,” Ms Banton said.
Misuse of auditor details is also on the ATO’s hit list.
“The ATO is currently investigating 20 cases where the tax agent has charged the trustee for an audit that never occurred. The ATO has confirmed that the consequences will be serious when this happens,” she said.
Ms Banton also reiterated the ATO’s ongoing concerns about tax agent and auditor independence.
“Currently, there are 150 tax agents, who are also SMSF auditors, being investigated for independence issues by the ATO,” Ms Banton said.
“This is their biggest area of concern and they are testing the integrity and independence of the SMSF system by looking at fund name vs the names of members; tax agent name vs audit firm name; number of contraventions and information on the firm and individual tax affairs,” she added.
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Manoj – if you cannot understand that a wife cannot audit her husband’s work because she is not Independent then I hope you do NOT give advice to anyone as you fail Auditing 101.
I read the CPA guide – and this also does not carry the weight of laws or government regulations. Chapter 9 basically says what I have said all along. In a small firm it is virtually impossible to avoid questions as to independence and the perception of bias and to quote
“then it is not likely that the independence requirements can be met.”
The guide answers your original question – Yes there are independence issues in the scenario you presented.
Perhaps you should read the guides you tell me to because you show a worrying lack of understanding fairly basic concepts of Auditor Independence.
Ralph
“APES110 is a standard and as such does not have the force of regulations or laws”
I think i have really really lost you (maybe 10 years back). Please read chapter 9 of the following document
http://www.cpaaustralia.com.au…
I hope you are NOT an ASIC approved SMSF Auditor – because if you are… be god be with the trustees of funds which you audit…
APES 110 is a standard and as such does not have the force of regulations or laws.
Look at 290.127 to 133 which deals with the issue of independence. It states that when the auditor is a family member or in a relationship (which includes being a partner or director of a business) with the account preparer that the way to deal with such an issue was “Removing the professional from the Audit Team”. Note that these sections refer not only to actual bias but perceived bias.
SMSF audits must be “independent”. If a business the auditor is a partner of gets fees from doing the accounts then how are they independent? Sitting in a different office doesn’t cut it.
It is standard practice for all competent accounting firms that they do not audit the SMSF accounts they prepare and has been for a decade.
Ralph
I think i have lost you… Sec 220 of APES 110 is about conflict of interest in competition with each other.
ASIC Class Order 12/1687 para 4 & 5, ASIC RG 243.93 and SIS Act Section 128F – 128Q all point towards APES 110
Manoj, that is not my understanding of APES p290.168 which deals with self review threat. See Section 220 and self interest. If the one firm gets fees for both preparing the accounts / tax return and the audit there is an obvious conflict of interest.
Having one partner do the SMSF accounts and another member of the same firm do the audit was disallowed about 10 years ago.
The two firms doing each other’s audits are not network firms as they do not meet part b of the definition of Network Firms.
APES 110 is a Professional Standard and the auditing of SMSF’s has additional independence requirements set by both the ATO and ASIC.
Ralph
My understanding of APES 110 paragraph 290.168 the self review threat can be safeguarded by using an individual to audit who was not involved in preparing accounts – so a two partner firm, where one partner audits is fine, including a husband a wife team.
What you are talking about is one firm auditing the others funds is banned, if the quality of audit is not there – please refer to paragraph 290.13 – it becomes a network of firms
Also those selling and becoming auditors should read paragraph 290.141
Manoj, the two partner firm you described where one partner did the accounts and the other the audit has been viewed as inappropriate for close to a decade. There is an obvious conflict of interest as regards independence.
Most firms arranged a “swap agreement” with another independent business where they would audit the other firm’s SMSF.
It would not matter whether the partners were married or not, two people in a business partnership together cannot be regarded as independent. Do you honestly think one partner would issue contravention reports about their partner?
Shelley
What is your take on where it is a two partner accounting firm and the partners are related to each other – spouse or father and child – and one partner is the accountant and the other partners is the auditor. Do you see any independence issues and will your answer be different if the partners were not related to each other – say friends from university who set up an accounting firm together, because the legislation allows such kind of arrangements.
The ATO has stated that eSAT is their preferred method of lodging contravention reports and have been testing 100% lodgement of audit complete reports using eSAT. I would like to see that happen, but also have the audit complete report to be expanded to include the date the audit was signed and whether it was qualified. This would then give the ATO data to compare with the audit details on the Annual return.