SMSF auditors reminded on changes to fee provisions
The ATO has reminded SMSF auditors and other tax professionals to provide feedback on proposed amendments to fee provisions of the Independence Code.
In July 2021, the ATO had issued an update advising approved SMSF auditors and other tax professionals of proposed amendments to the fee provisions of APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (2018) (the code) issued by the Accounting Professional & Ethical Standards Board (APESB).
The ATO has reminded that consultation on the exposure draft of the proposed amendments closes on 31 August 2021.
The proposed amendments, which are expected to take effect from 1 January 2023, include additional guidance for firms on evaluating and addressing independence threats created when fees are negotiated with and paid by an audit client, and those created by the level of fees, proportion of fees from non-audit services, and fee dependency.
It also includes a new rule for assessing fee dependency where there are multiple audit clients referred from one referral source.
“The new rule, as currently drafted, states that where the total fees in respect of multiple audit clients referred from one source represent more than 20 per cent of the total fees of the firm, partner or office of the firm, a firm will be required to evaluate the significance of independence threats and apply safeguards, as necessary, to eliminate or reduce them to an acceptable level (see draft AUST R410.14.1),” the ATO said
“This rule will effectively modify the existing rule AUST R410.3.1 in the code, which currently states that where the total fees in respect of multiple ‘audit clients’ referred from one source represent a large proportion of the total fees of the firm expressing the audit opinions, firms must evaluate the threat and apply safeguards when necessary to eliminate it or reduce it to an acceptable level.”
The ATO also noted it has published web guidance on the current auditor independence requirements, including fee dependency and referral source issues.
“When applying the existing rule and our web guidance, a firm needs to determine the total fees from all ‘audit clients’ (as defined in the code) from one referral source, not just SMSF audit clients, when identifying and evaluating any independence threats. As currently drafted, we expect the new rule will operate in the same way,” the ATO explained.
“SMSF auditors and other tax professionals are reminded they should review the draft amendments and provide any comments to the APESB by 31 August 2021.”
This comes as specialist auditors have recently flagged that the changes in fee referral benchmark may throw a challenge to SMSF audit firms.
Tony Zhang is a Journalist at 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 2020, Tony has covered various publications across the legal, financial and professional services sectors including Lawyers Weekly, Adviser Innovation, ifa and Accountants Daily.