ATO updates guidance on reciprocal auditing arrangements
A new update has been applied to the recently released ATO independence guidance for approved SMSF auditors.
The ATO has applied an update to the following section of the guidance, Auditor Independence - Issues for firms when restructuring in the Reciprocal auditing arrangements and referral source information area.
“The update makes it clear that where a well-established firm mainly derives its income from providing auditing services, as a guide, if the fees generated from one referral source are less than 20 per cent of the firm’s total fees, we would not consider this in itself to create an independence threat,” the ATO said.
“Other factors may still be relevant in evaluating the level of any threats to independence.”
This comes as, previously, ASF Audits head of education Shelley Banton had hinted at the new changes and warned that new SMSF auditors who rely on the ATO’s 20 per cent benchmark, as a rule, to enter into a reciprocal arrangement will be sadly disappointed.
“It’s not a get-out-of-jail-free card and they will quickly discover it not only refers to all independence threats, but it just refers to only one of the many independence threats that need to be reduced to an acceptable level and the 20 per cent refers to fee dependency issues only,” she said.
“So, each firm in that arrangement will be required to evaluate the many qualitative and quantitative factors that are relevant in assessing the significance of independence threats, and what needs to be remembered is that the reasonable and informed third-party test must be passed at each step of the way.”
In the new update, the ATO also reminded that in providing guidance in this new format, it will enable the ATO to better respond to changes, emerging issues and future guidance needs to assist approved SMSF auditors to meet their obligations.
“Since the guidance is intended to be an ongoing document to which further updates on independence issues may need to be added, we will provide notification to industry of when any significant updates are made,” the ATO said.