The New SMSF Auditor Independence Standard Has Really Set The Cat Amongst The Pigeons

For those of you that aren’t aware, a new independence standard was released in January this year and it has its own chapter on SMSF Auditors. The standard states that an auditor may not do an audit where their firm or anyone from their firm has prepared the accounts. In terms of “the same firm” this also includes networks of firms.

There is a bit of an “out” in the standard in that if the work you are doing on the accounts is merely “routine or mechanical” then you may audit the fund if your firm or another firm in your network prepares the tax return and finalises the accounts.

So what is “routine or mechanical”? Well that is the million dollar question and it all seems to depend on where you are coming from. I have seen a number of articles saying that this new standard has effectively sounded the death knell on Chinese wall arrangements. I would note however that all these articles are written by people who sell SMSF audit services.

This article by Ray is a bit more grounded and he is not trying to sell you anything. What he is really saying is that the Tax Office need to come out and tell us what they expect. They have stated that they will not be committing any compliance resources for the 2020/21 year around the new independence standard so that means that you can continue to use your Chinese Wall processes for the next 10 months but who knows from there?

I am certainly not going to try and confirm definitively whether these arrangements will be able to continue. Short of the ATO coming out with a statement that they don’t believe converting a full set of downloads from Class into a tax return is more than routine or mechanical I would suggest that you start putting together a strong argument for when they knock on your door.

But what if it is? What if the ATO do come out and state that they believe it is a breach of the new independence standard?

Well, watch this space. We have already spoken to auditors that represent audit of SMSFs using Chinese Walls. We will look at putting together a sort of auditors co-op where you throw 100 audits into the ring and we allot 100 audits for you to do for other firms. Independence will be there and you won’t have to lose any fees.

Here’s an article by SMSF Adviser on the importance of Data feeds for new independence standards