ATO director Kellie Grant explained that when a firm is looking to restructure its auditing engagements, it will need to be careful that it doesn’t create another independence issue.

“For example, they need to ensure that they don’t enter reciprocal auditing arrangements where two firms just end up auditing each other’s clients,” she warned.

“That can cause them to rely on the one referral source. This kind of arrangement can inappropriately influence the auditor’s judgement and behaviour if the auditing firm is solely dependent on those fees.”

In these sorts of arrangements, Ms Grant said the auditor may be reluctant to issue adverse findings where there are risks, because they may feel they’ll lose their entire client base.

“So, you need to be mindful of not entering into reciprocal auditing arrangements because they can create self-interest, familiarity and intimidation threats,” she cautioned.

Ms Grant noted, however, that the code states that independence threats can be reduced to an acceptable level by putting in place appropriate safeguards such as spreading out the referral of clients to a number of different SMSF auditors which would, of course, minimise dependence on one source.

“Another appropriate safeguard could be appointing an appropriate reviewer that didn’t take part in the audit to [review] some of those key audit judgements,” she said.

“If the circumstances creating those threats can’t be eliminated and appropriate safeguards can’t be applied, then really the auditor should look to decline that engagement.”

SMSF auditors, she said, should also be aware that they can’t just go out and set up their own firm and accept audits from the firm at which they were previously a consultant, partner or employee.

“That’s because threats may exist that the auditor may not appropriately evaluate the judgements made or advice provided to clients of that firm from when the auditor was a partner of that firm,” she explained.

“Due to the previous relationship, there is a threat that the auditor might be too accepting of the work of the firm that they previously worked at. This is particularly if only a minimal amount of time has passed since they left such as within a 12-month period.”

Ms Grant said it may be possible to address independence threats arising from these types of outsourcing arrangements if other auditors in that firm are able to undertake the audits.

“[Alternatively], the auditor could obtain an appropriate review of the audit, again by someone who is not from the firm and is not providing the accounting and tax work to the client,” she said.

She also noted that the guide suggests that after a two-year period, any independence threats should generally no longer exist.