ATO SMSF audit scrutineer Kellie Grant
There is deep angst in parts of the accounting world about the way the new set of ethical guidance on auditor independence is being interpreted and how it is impacting smaller to medium accounting firms.
Prime examples at the centre of Australian audit debates is the record and the risks ahead for many accounting cum audit firms.SMEs serving SMEs and the affluent mass market; we’re talking the cohort that previously performed more than just an audit of a self-managed superannuation fund.
Do not underestimate the noise that this tightening of ethical standards has caused, because there are people and audit firms that stand to lose a whole bunch of fees soon enough.
SMSF audit practitioners are telling regulators in industry meetings that they are looking at dropping either the audits or the financial planning consulting work.
This is because the prescriptive nature of the ethical changes means that they should not be doing both. They cannot, or will the industry define leeway around this rule?
The Australian Tax Office is urging practitioners to look carefully into questions of law, history and practice.
Tax office officials are responding to blatant breaches of independence standards. And thus influencers such as ATO’s Kellie Grant seek to remind people in the accounting world that there are very few exceptions to the hard rule that states: if you do the audit then there is very little else you can do for a client, even one you’d like to upsell.
Grant is the ATO’s Director SMSF Auditor Portfolio (and co-presenter at recent seminars).
Limited exceptions exist for what are deemed routine or mechanical tasks such as the formatting of annual reports for signing and lodgements. Any task that even remotely looks like it is taking responsibility in some form for a management judgement call (by the auditor) is well and truly out of bounds even if so called ‘Chinese walls’ have been set up in an accounting practice.
It is an important reminder: the ATO will be enforcing the new and prescriptive guidelines issued by the Accountants’ Professional and Ethical Standards Board (APESB), most recently in early August.
What did SMSF auditors do in the past?
There are firms that sought to justify doing a ‘one stop shop’ service for trustees of an SMSF by arguing that they could set up ‘Chinese walls’ so people doing different components of work for the same client were not talking to each other.
This was used as the mechanism to try to provide clients with a holistic service, but it can also arguably be the way that the firm can sell more services to the client.
Some commentators within the accounting profession will argue that the more prescriptive ethical regime is set to punish the smaller practices because they will need to decide what they want to be doing in the SMSF space on an ongoing basis. It will cost them revenue and also force a client to look elsewhere.
It is not the easiest time to have to cope with a change in the way in which a regulatory regime operates.
Accounting firms and other businesses providing services to professionals are suffering the flow on effects from individuals and corporations not having work. The coronavirus pandemic has ensured that things are tight for people in the accounting profession.
There are even practitioners working with small businesses on Jobkeeper claims that are not taking fees because their clients simply cannot afford that cost right now.
There are people running accounting firms who don’t know whether their clients are going to exist in two, three or four months. They know that some of the people that have businesses reliant on their firm for tax and other compliance services might end up going to the corporate knackery as a result of the severe drop in business activity.
Accountants I have spoken to have declined to charge for certain JobKeeper related services in the hope that their clients can survive the pandemic paralysis and then commence trading again. Some of the accountants grappling with these issues will be the same people that are being asked by ethical standard setters and regulators to reconsider aspects of their accounting practices that might no longer be compliant with a new world ethical order.