ATO backs away from independence

The Australian Tax Office (ATO) has confirmed that professional independence is not part of their regulatory framework and that they will no longer make a statement on this as part of their audits of self managed superannuation funds (SMSF).

Instead, regulation of auditors’ independence will be the responsibility of professional accounting bodies through their professional standard FI Audit Independence.

In a statement to the Institute of Chartered Accountants this week, the ATO clarified its position on independence by highlighting that “any audits of SMSF undertaken for the purpose of the SIS [Superannuation Industry Supervision] Act must be conducted in accordance with the recognised professional association’s auditing standards. The Tax Office does not enforce or define these standards. As such, definitions of independence for auditing purposes are the responsibility of the associations.”

The Institute of Chartered Accountants commends the ATO’s decision, saying it recognises the rigour of the professional standard F1.

“Our professional standard on independence reflects world’s best practice, with clear guidelines on how to identify, assess and manage risks to professional independence, specifically in the provision of assurance services. Further, where safeguards cannot be implemented, the member is obliged to reject or cease the engagement,” said Institute of Chartered Accountants CEO, Stephen Harrison.

“The ATO’s announcement to refrain from investigating breaches of audit independence is a testament to this.”

Chartered Accountants’ adherence to professional independence will continue to be scrutinised by the ICAA’s comprehensive Quality Review program of members’ practices.

The announcement is a big win for the accounting profession and is the result of a number of years of lobbying the ATO and government. However, the ATO has indicated that independence will remain a primary risk factor when identifying public practice firms for review.

“Where the auditor and the tax agent are listed in the same firm, the firm runs a considerably higher risk of facing an audit by the ATO. This is a costly and inconvenient exercise, but one that can be avoided by making sure your practice complies with F1,” said Mr Harrison.

ICAA