The APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (2018) outlined additional independence recommendations beyond the reciprocal auditing arrangements that saw 18 auditing firms disciplined last week. This action by ASIC is a jarring sign that auditors should now be on high alert.
With fee referral threshold recommendations also included in APES 110, it’s a natural assumption that the next big focus area for ASIC will be aimed at breaches of these regulations.
The ATO has provided us with the guideline of a 20% maximum threshold of fees from a single referral source for audits, but it remains to be seen how this will be applied in reality as we enter the new financial year.
My view is that breaches of this threshold will likely be next in the line of fire, and it will impact many more auditors than the reciprocity standards.
With a number of firms expressing angst over this arbitrary threshold, I ask myself why? I’ve amassed significant knowledge over the years in the audit industry, however the one understanding that I have built my business and reputation on is the premise that the primary aim of auditing is, believe it or not, to be objective.
At Reliance Auditing, we are entrusted to protect the trustee’s retirement savings by identifying compliance risks in relation to transactions within the SMSF.
How can auditors remain objective if their own compliance is threatened by self-interest?
If the very intention of the auditing profession is to conduct an impartial assessment of a fund’s compliance with superannuation law, then why make any concessions that might compromise that?
While the clock is ticking for firms to correct their conduct from an independence standpoint, I believe many players will find this requirement very challenging to comply. Rightfully, this shake up in the industry will lead to better outcomes for all, raising the standard of work and ultimately preserving the audit quality.
With all due respect APES 110 applies to a great many things; not just SMSF Auditing. SMSF Auditing is an industry riddled with fee recovery problems and low standards because of pricing constraints. One of the main reasons for this is many trustees simply do not value the audit. There is a substantial argument out there that SMSF audits are unnecessary. Not long ago there was a proposal to introduce a three-year cycle, albeit it was so poorly thought through it never got anywhere. Has it not occurred to the ATO that any reference to APES 110 and a 20% maximum referral source is by default extending 20% to the entire scope of assignments that APES 110 applies to? There is simply no practical logic in that 20% number. The only way that it will ever be something to worry about is if it is specifically mandated in APES 110. Moreover, if it is, there will be a whole lot more going than its impact on the SMSF audit sector.
Instead of banning reciprocal auditing which helps small practices to efficiently run their SMSF’s practices why not focus on the real issue was the audit done properly. If the audit was done properly why does it matter if there was a reciprocal relationship.