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APES 305 to improve due diligence with auditor independence standards

APES 305 to improve due diligence with auditor independence standards
Miranda Brownlee
25 January 2021 — 2 minute read

While the revised APES 305 standard means complying with another set of requirements, it may help SMSF firms navigate the process of outsourcing their audits ahead of the auditor independence requirements, according to technical experts.

In early December last year, the Accounting Professional and Ethical Standards Board Limited updated APES 305 Terms of Engagement, which will have implications for SMSF firms, especially those using outsourced services. The new standard will apply to engagements commencing on or after 1 July 2021.

Speaking in an upcoming SMSF Adviser podcast, ASF Audits head of education Shelley Banton explained that while the revised standard may be more confronting for firms that outsource overseas and haven’t previously provided this information to clients, it is important to remember that it will apply to any kind of outsourcing.


“It also applies where it’s outsourcing to an independent SMSF auditor within Australia, for example,” she said.

Ms Banton explained that firms will need to imbed extra details into their SMSF engagement letter such as details of the provider, where the services are being performed in terms of where the geographic location is, and the nature and extent of the services being used.

With the updated standard applying from 1 July this year, Ms Banton said this doesn’t provide firms with a lot of time to look at the new requirements, particularly with many firms already dealing with the auditor independence standards in APES 110.

“Firms will need to look at specific matters in terms of the service provider’s business and the policies and procedures, whether the staff have the necessary competencies and skills, the communication skills of the provider, whether there are contingency and business continuity plans in place and whether they can conduct that service on an ongoing basis,” she explained.

“So, it’s all about due diligence, which traditionally hasn’t been done very well within the SMSF industry in terms of looking at these outsourced services and making sure they can tick all the boxes and put documentation in place before theyve started using those services and before theyve actually engaged with the client and informed them that is the case.”

Smarter SMSF chief executive Aaron Dunn said the revised standard may assist firms with the due diligence process as they look to outsource audit services ahead of the new auditor independence standards.

“This very much ties in with a lot of the work that needs to be done by firms in order to comply with APES 110,” Mr Dunn said.

Ms Banton said firms need to make sure they’ve developed an outsourcing agreement which manages the risks of transitioning to using a particular service provider, looks at what project management skills and disciplines they’re going to be putting in place, and ensure that they’re meeting the professional standards.

She also pointed out while the revised standard refers to a material business activity, this can’t just be looked at from a fees point of view.

“You cant just look at it from a fees point of view, you have to look at it from a client point of view as well,” she said.

“So, while it may only be 5 per cent of your business, it may actually be a material issue to the client, because if the service is disrupted at any point in time, thats going to impact the quality, the timeliness and the scale of the services that are going to be provided. Therefore, from the trustees perspective, it’s really important that each case is judged on its own merits and on those particular facts and circumstances.”

Miranda Brownlee

Miranda Brownlee


Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years. 

Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: This email address is being protected from spambots. You need JavaScript enabled to view it.

APES 305 to improve due diligence with auditor independence standards
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