Crack down on auditor independence by ATO for 2016/17 FY
The ATO has been clear that risks to independence are a focus in the 2016-2017 financial year, as is the assurance that SMSF auditors are complying with all of the independence requirements set out by the APES Code of Ethics for Professional Accountants.
Here are a number of key threats to auditor independence which are being focused on by the ATO in the current financial year:
This is the threat of an SMSF auditor who also acts as a tax agent for the fund. Self-reviews are a threat to independence and auditors are required to safeguard independence and remove themselves when they are concerned about compliance.
The process where an auditor will audit their auditor’s fund. This process can lead to self-interest threats and creates a disincentive to question the other practitioner’s work. ASIC and the ATO have an issue with reciprocal audits and require a third party that is independent to undertake an objective audit.
Swapping clients within one firm where one partner audits client SMSFs and the other partner provides accounting and tax services is another example of an inappropriate activity which can be a threat to independence.
Personal or family relationships
There can be a conflict in the case where a personal or family relationship exists between an SMSF auditor and a referral source. The ATO would consider a personal relationship an issue for independence in the case of SMSF audits.
Electronic data feeds
In the age of electronic data feeds, auditors should be aware of the risks of the accuracy of third-party supplied financial information. Auditors should put in place appropriate controls to ensure the reliability and accuracy of information to ensure all information and data feeds are reliable.
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