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Auditors in financial advice firms warned on independence threats

SMSF auditors auditing the funds of clients also receiving financial advice from the same firm may be at risk of breaching the APES independence standards, depending on the remuneration model, warns an audit firm.

SMSF Miranda Brownlee 20 November 2020
— 1 minute read

ASF Audits head of education Shelley Banton said for firms offering financial planning advice as well as SMSF audit services for the same clients, there are some potential self-interest and review threats because the firm’s fees may be directly linked to the financial planning advice.

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“It will depend on the remuneration structure being used by the firm,” Ms Banton said, speaking at Smarter SMSF’s Virtual SMSF Day. 

“Where a firm is receiving commissions or asset-based remuneration, there are simply no safeguards that will reduce independence threats to an acceptable level.”

If the firm has a genuine fee-for-service model in place, Ms Banton said it may be possible to reduce the independence threats accordingly, but potentially it could still inappropriately influence the auditor’s judgement. 

“The auditor will still need to approach independence in a similar manner as to when the firm offers tax or accounting services and those similar assessments will still need to be made,” she stated.

“In most cases, it’s going to be very difficult for an SMSF auditor to put those appropriate safeguards in place because, even if the firm ceases to offer financial planning services, the auditor would still be facing the same risks or would effectively still be auditing the firm’s work in subsequent years for as long as those product recommendations or investment decisions remain in place.”

In this particular case, she said, the absence of independence, or the perception of the absence of independence, would require the auditor to decline that engagement under these circumstances. 

Ms Banton also reminded SMSF firms that independence is also compromised where an SMSF administration firm prepares financial statements and performs the audit and gets away with it by white-labelling the financial statements so that they are lodged under a different firm’s tax agent number.

“We must remember here that routine and mechanical does not refer to who lodges the return, it refers to who does the work, and the ATO has identified that this practice is also unacceptable and they’re going to be addressing this issue further,” she cautioned.

Auditors in financial advice firms warned on independence threats
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