In a public update, ASIC stated that it had identified 18 SMSF auditors who were involved in reciprocal audit arrangements, which create self-interest and familiarity and threaten independence.
The 18 auditors were referred to ASIC by the ATO for contravening the independence requirements under the APES 110 Code of Ethics for Professional Accountants (APES 110) because of their involvement in reciprocal audit arrangements.
ASIC stated that each of the reciprocal audit arrangements involved two SMSF auditors who audited each other’s personal SMSFs.
“There are no safeguards that can reduce the threats to an acceptable level and the auditors should not have entered into the arrangements,” it said.
Consequently, ASIC accepted voluntary cancellation requests from nine of the SMSF auditors and imposed additional conditions on the registration of the other nine.
The additional conditions imposed on the auditors include:
- Restrictions in relation to audits of their personal funds;
- Independence reviews to be performed and declarations to be made to ASIC about their SMSF audit clients;
- Additional education requirements relating to ethics and auditor independence;
- A requirement to notify their professional association.
The corporate regulator said the actions were appropriate considering the auditors’ individual circumstances and the developments in guidance and practice since ending their reciprocal audit arrangements.
“It should now be clear to SMSF auditors that entering into reciprocal audit arrangements is an unacceptable breach of their independence requirements. ASIC will disqualify auditors for such breaches where appropriate,” ASIC warned.
ASIC reminded SMSF auditors that they must comply with the auditor independence requirements set by the Accounting and Professional Ethics Standards Board (APESB) in APES 110.
“Auditors are required to identify, evaluate and address threats to their independence,” it said.
“Guidance on reciprocal SMSF audit arrangements is included in APESB – Independence Guide – Fifth Edition, May 2020, which explains the relevant independence threats and the lack of available safeguards.”
It also noted that SMSF auditors have the right to appeal decisions ASIC makes in relation to them under the SIS Act.
The integrity of the SMSF sector, rightly or wrongly, hinges on the private sector being the gatekeeper. The ATO rely on SMSF Auditors to bring funds to their attention whilst ASICs sits back and waits for its referral from ATO.
Without the private sector undertaking the audit role, the public service would need to be expanded and that is simply a cost to taxpayers.
Having the private sector undertake an annual audit of every SMSF has created a profitable industry.
However, wherever there is the chance to make money, there will be the potential for standards to be compromised. At best it is ethical blindness but there are many unconscious biases that come into play. It takes a high level of self awareness to appreciate the influence.
This is the reason for the independence requirements. The AUASB revamped the independence requirements to draw a black line between what should happen and what could happen.
The Financial Services industry got a bigger pill to swallow in that all advisers are required to undertake training in ethics and then, ensure that they can identify and then avoid conflicts of interest.
Accountants seem to think they are above the self-interest tendency of Financial Advisers but, without ensuring awareness, it is always present in every commercial enterprise.
The main issue with SMSF audits that I see is the requirement to undertake a financial statement audit. As Brian said, SMSFs are not BHP. The rigorous requirement to perform a financial statement audit harks back to the implementation of SISA. Being an ISC Auditor with the rollout of SISA, it was evident that the accounting systems of (all) funds were wanting. Fast forward, close to 30 years, tech has solved most, if not all, those problems, at least for SMSFs. If SMSF auditors only had to complete the compliance audit, there would be more time to concentrate on what the ATO wants to see. At the end of the day, it is the professional associations that receive a referral where there is a qualified financial statement audit but hey, why would they take action due to their self-interest bias?
A firm gives B Firm to audit and B to C and C to D – D then gives A to audit funds – in this scenario – no body gets cought – but the inssue is that when B is auditing – not more than 20% of B audits can come from A. Which means that that Firm A can give their audits to Firm B / C / D – but B / C / D cannot give their firms audit to A. Implementing this rule will take ATO couple of years.
It has been the case that many of these reciprocal audit arrangements have been bandied about over the last 12 months so I guess the groups that were promoting these arrangements have now been called out which is a good result for the industry.
Not sure why they are not focusing instead on the large firms that are continuing to still offer both audit and administration services.
……..and taxation services, and online Fund setup with no SOA, and rollover from an existing Fund into the new one with no SOA, and dodgy advice about what to do with the Fund’s assets…….In short, all the things everyone else gets whacked for.
But, no, let’s chase after a bunch of auditors who had the audacity to audit friend’s Fund. No mention of whether the audits were compromised, or whether a Fund in breach was incorrectly given a clean audit, or whether non-commercial fees were charged.
Just jumping at the tired old “conflict of interest” shadows again.
Or large audit firms that are still doing administration work under the cloak of calling it labour resourcing. This activity clearly is an attempt to circumvent the independence requirements.
My ex-husband was the Tax Agent for our SMSF and for years after our separation he lodged electronic tax returns for my super that was held within the SMSF without my knowledge or consent. More despite repeated legal efforts I as a member/trustee/director of the fund was unable to move the SMSF to an independent tax agent or roll my super away from it to a new fund. That was an abuse too. Tax agents and auditors should be barred from lodging returns for entities where they have a personal conflict and domestic partners should be able to apply to have all accounting work moved to an independent tax agent once the relationship fails
Did they find anything wrong with the audit, the fund. We’re the accounts of the fund correct. This is the most important thing not the fact that they audited each other’s personal fund. SMSF’s are not BHP.
As usual ASIC is focusing on technical breaches instead of actual client harm. The banking royal commission found the big banks had harmed millions. Who went to jail? – ASIC – As Silly as It Comes.