Long-awaited ATO auditor independence guidance released

This comes as the ATO had announced it would publish the guidance in an online format in lieu of writing to audit firms, enabling the Tax Office to provide targeted, up-to-date information to auditors to help them meet their obligations. The online format will also allow the ATO  to respond quickly to any changes, emerging issues and future guidance needs.

“We are pleased to announce that this content is now available on ato.gov,” the ATO said.

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“This web content will provide approved self-managed super fund (SMSF) auditors and other tax professionals with guidance on how to comply with the independence standards in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (2018) (the Code), which became effective on 1 January 2020.”

The ATO noted it will cover both general independence requirements and specific issues of concern to the industry such as the rules relating to in-house audits and the Tax Office’s compliance approach.

“We expect all firms and network firms who provide both non-assurance and auditing services to use their professional judgement to assess whether their specific arrangements comply with the standards as set out in the code. This guidance material has been provided to assist you with this process,” the ATO said.

“We cannot provide certainty about proposed arrangements in the absence of a complete analysis of the facts and circumstances. We are only likely to undertake this type of analysis where we undertake a compliance review.”

The new guidance outlines the importance of the conceptual frameworks set out in the code when assessing independence.

For each audit engagement, an approved SMSF auditor must apply the conceptual framework set out in the code when assessing independence, the ATO explained. 

“In broad terms, this involves identifying any threats to independence, evaluating whether those threats are at an acceptable level and addressing any threats that are not at an acceptable level,” the ATO said in the guidance.

“When evaluating independence threats, auditors must decide whether the same conclusion(s) would be reached by a reasonable and informed third party, having regard to the facts and circumstances of the case. The test is an objective one requiring professional judgement.”

The guidance also provides in-depth guidance on the complexities surrounding non-assurance services. Although the independence requirements apply to all approved SMSF auditors, the ATO said there are a number of independence requirements that apply specifically to firms and network firms that provide non-assurance services to SMSF audit clients.

“The term ‘in-house audit’ is not defined in the code. However, it is used to commonly refer to a situation where the audit of an SMSF is conducted by an auditor who works for a firm or network firm that provides non-assurance services to the SMSF trustee(s),” the ATO said.

“Before a firm accepts an engagement to provide a non-assurance service to an audit client, the firm or network firm must determine whether providing the service might create a threat to independence.”

The guidance sets out more directions on crucial areas including management responsibility prohibition, guidelines for routine or mechanical test and issues for firms when restructuring.

The Tax Office also outlines the key considerations and impacts accountants, auditors and SMSF advisers need to know on affected tax and financial planning services and lays out the ATO’s role and compliance approach.

The ATO reaffirmed that their approach to compliance during the 2020–21 income year is to provide support and guidance to assist auditors comply with the requirements of the code which was also outlined in the SMSF Association National Conference.

“This will give firms and network firms time to consider if a restructure of their firm or audit engagements is necessary,” the ATO said.

“However, for audits completed after 1 July 2021, firms will need to comply with the code. This includes audits they have completed for 2020–21 and future financial years and any audits that need to be completed for earlier financial years.

“If we find firms are breaching the independence standards after 1 July 2021, we may refer the approved SMSF auditor to the Australian Securities and Investments Commission (ASIC) for further action.”

View the ATO guidance on independence standards here.