There are only a few weeks before the 1 July changes to auditing standards come into effect, with in-house audits at risk of not complying with the Code.
So, if your company is considering seeking external auditing services, there are a few fundamental questions to ask when selecting a new SMSF auditor.
Time is running out
Long has it been suggested that there are independence issues with in-house SMSF Auditing. These risks include referrals/close relationships/reciprocal auditing arrangements being a significant portion of revenue, reducing independence in the Auditing process, the firm providing advice to the trustee(s) of the fund being audited as well as other non-assurance services to the fund.
As of 1 January 2020, the ATO restructured APES 110 Code of Ethics for Professional Accountants (including Independence Standards) came into effect. The restructured Code and the Independence Guide (May 2020) identified risk from auditors performing in-house audits.
According to the ATO, changes specifically targeting SMSF auditors include: “an SMSF auditor cannot audit an SMSF where the auditor, their staff or their firm, has prepared the financial statements for the SMSF unless it is a routine or mechanical service.
From 1 July 2021, the ATO will enforce compliance with the new requirements. After this deadline, the ATO will take compliance action if auditors are found to not be complying with requirements. The result of which may see auditors referred to ASIC for “further action”. Firms will have had 18 months to prepare for these changes.
According to the ATO: “We expect all firms (or network firms) who currently conduct in-house audits and need to restructure to meet the independence requirements to have restructured by 1 July 2021.”
For firms that have not finished restructuring by 1 July 2021, according to the ATO the firm will need to show genuine attempts to restructure have been made, and demonstrate reasons why this was not completed by deadline.
Time is running out for firms that have not yet set themselves up to meet new compliance regulations. Many firms may have conceded that they are now unable to undertake the audit of their SMSF clients financial statements. Adequate safeguards may not be available or they may be too costly to facilitate in the long run.
To mitigate the risk to the firm, it may be worth outsourcing to an independent auditor.
Questions to ask when choosing a new SMSF Auditor
Selecting an independent SMSF Auditor is a process that requires diligence and patience, even with the time pressure of meeting said new ATO compliance regulations.
There are three key factors to take into consideration: people, process and product.
What to ask – People
Confirming that your Auditor is independent is fundamental in your research. This may take a mix of questioning and your own research, including company searches and checking with colleagues for background information.
Firstly, you’ll want to ask how many qualified and accredited SMSF auditors are on the team. This can help in providing an idea of the size of the team and help you judge if there is enough capacity to assist your firm most effectively.
Secondly, you’ll want to investigate the reputation of the firm. Look at reviews on Google or Facebook and speak to colleagues or mentors for insider information (if any) around the potential team.
You’ll want to investigate the experience and knowledge of the team, which may mean questioning:
- Technical knowledge
- Dedicated client support
- Inhouse training programs
- Outsourced team
What to ask – Process
The next category to investigate is the Auditor’s process, as you want to align yourself with both the right people for the job and those who will do it thoroughly.
Now you’ll want to discover if they are proactive. For example, will the SMSF Auditor check if the right documents are in place and identify any gaps even before the process starts? Are they able to assess the appropriateness of existing processes or tailor safeguards to specific client circumstances?
Further, enquire into how client communication is managed. How will the SMSF Auditor/team integrate with the firm, how is communication between teams to be streamlined and how are status updates to be provided? It may be worth asking if they offer an online portal.
In assessing the processes of the SMSF Auditor/team, you’ll want to investigate the following:
- Online Audit Portal
- Document Uploading
- Audit Engagement Letter
- Trustee Representation Letter
- Queries Management
What to ask – Product
The product itself is also important to assess, which involves asking the SMSF Auditor how they can help you with difficult situations. Does the SMSF Auditor offer various levels of support, such as 24/7 business support, technical support and direct access to Registered SMSF Auditors?
If you’re seeking to hire a new SMSF Auditor, you’ll want to enquire into, and see evidence of turnaround time, Independent Audit Report, Trustee Audit LEtter, ATO Auditor Contravention Report, pricing models, feedback and support tools as well as quality control.
Compliance is crucial for success
In 2019, the ATO conducted a compliance review of 51 top 100 audit firms. Of these firms, 2 were referred to ASIC from failure to identify contraventions, 5 were found to have exited audit services, 35 were found to have minor deficiencies. These minor deficiencies include insufficient audit documentation or engagement letters referencing specific SISA sections, and SISR regulations not signed or updated.
In fact, only 10 firms were found to be fully compliant and National Audits Group was identified as one of these 10 firms.
National Audits Group services thousands of SMSF audits nationally. National Audits Group does not operate as a larger network, nor is it affiliated with a network group. National Audits Group strives to provide specialised audit-only services and offers a dedicated team with extensive knowledge and experience.
For more information on the implications of the new APES 110 standards on your accounting or audit firm, or to discuss the 1 July changes further, please don’t hesitate to contact the team at National Audits Group.