2020 - The Year When In-House SMSF Audits Were Put in Lockdown

So, what has changed?

In 2018 the Accounting Professional & Ethical Standards Board (APESB) issued a restructured APES110 Code of Ethics for Professional Accountants.  This new code came into effect from 1 January 2020.  In addition to the new code the APESB with collaboration with Australia’s three key accounting bodies CAANZ, CPA and IPA issued a practise guide for the new code in May 2020.  This new guide included a full chapter on Self-managed Superannuation Funds.  The ATO also recently updated its audit report for SMSFs to align with and ensure compliance with the new code.

How does this impact me?

There is an increased focus on independence of SMSF auditors and how the impact of various scenarios compromise independence.  The guide spells out scenarios in which there is a threat to independence and whether there are adequate safeguards to mitigate the risk. Where no adequate safeguards exist, the auditor must refuse the engagement.

These scenarios include:

Where the ‘books’ are prepared by the auditor

Carrying out the accounting and/or tax role and audit function in the same firm

Carrying out the SMSF audit where the auditor was previously a consultant, partner or employee of a firm

Relationships between auditors and referral sources

Firms offering financial planning services

Auditors 'contracting out' accounting work

Long association with SMSF clients

While most SMSF auditors have known about a few of the scenarios above and have adapted their practices.  The changes to the scenario where the accounting and/or tax role and audit function are in the same firm has changed significantly.According to the code and guide auditors can only funds prepared by accountants in the same firm where they are ‘routine or mechanical in nature’ that requires little or no professional judgement. Examples included in the standard are

Posting transactions coded by the client to the general ledger

Posting client-approved entries to the trial balance

Preparing financial statement based on information in the client-approved trial balance and preparing related notes based on client approved records.

In practise accountants prepare almost all the accounting entries for the general ledger with the assistance of specialised software such as Class, Simple fund 360 or SuperMate.  It is a very rare scenario where the trial balance is prepared by a client for the accountant to provide financial statements.The ATO also warned ‘Auditors shouldn’t assume the copies of signed financial statements and trustee representation letters amount to audit evidence that meets this requirement’. I would hazard a guess that getting your clients to sign off a prepared trial balance would also not be considered sufficient to support routine or mechanical in nature.As an added incentive the ATO advised ‘During 2020-21 financial year, the Commissioner will write to auditing firms where our data indicated that the auditor could also be auditing financial statements prepared by the same firm to assist auditors comply with the requirements under the restructured code’.

So, what does that mean to Accounting Firms?

The new guidelines force accounting firms to outsource their SMSF audits where they were previously undertaken in-house.

How about swapping my audits with another sized firm?

This is specifically addressed in the guide. It states 'These arrangements are of concern to both the ATO and ASIC' it also states there are no safeguards available and each auditor must decline these respective engagements.

How can the Partners Wealth Group Audit team help?

We are an independent, efficient quality auditor that can work with you on this transition.  In 2019 the ATO undertook a review of the top 100 SMSF audit firms which included Partners Wealth Group.  I am pleased to say we passed the review with no issues raised. Our experienced team ensures you experience a quick timely audit with human touch which ensures you achieve a fantastic experience. Please contact the Partners Wealth Group Audit team today, and we will be more than happy to help you."