Writing in the latest Class annual report, she said the revised standard mandated that an SMSF auditor could not audit an SMSF where the auditor, their staff or firm had prepared the financial statements of the fund — unless it's a routine or mechanical service.

“Nothing has caused more disruption than the new independence requirements under the revised APES 110 Code of Ethics for Professional Accountants,” she said.

“Anecdotal evidence from the ATO suggested that around 35 per cent of all funds would be affected, requiring significant planning in capacity, workflow, staffing, technology, and lodgement deadlines by SMSF auditors.”

She said while the ATO applied at transitional period until the end of 2020–21 for compliance, the number of SMSF auditors had declined 4.9 per cent to the end of March 2022, leaving just 5,256, and was reaching an unsustainably low level.

“The decrease could also be a new natural rate of attrition for SMSF auditors rather than a result of the revised independence requirements. The reason is that 65 per cent of all auditors complete less than 50 funds, which may not be sustainable given the extensive professional obligations of SMSF auditors.”

The low level of fees was another source of concern.

“A self-interest threat is created where the fee is so low that it might be challenging to perform the audit in accordance with technical and professional standards.

“Additionally, the ATO has identified that SMSF auditors providing high-volume, low-cost audits can have SMSF independence issues and risks with auditor competency and quality.

“The results speak for themselves: during FY21, 21 high-risk audits were undertaken, and no SMSF auditor was found to be fully compliant. Six auditors  were identified as not meeting the independence requirements, with the ATO generally referring 50 per cent of all high-risk auditor cases to ASIC.”

“Another independence hot spot is reciprocal audits — an arrangement whereby two SMSF auditors audit each other’s personal SMSF or where two firms prepare the financials in-house and then enter into an agreement to audit each other’s SMSF clients.”

She said the ATO and ASIC were both alert to the threat but there were no safeguards that could be put in place to eliminate the circumstances that created a self-interest, familiarity or intimidation threat to independence where auditors have reciprocal arrangements for their personal funds.

“They must decline or end the arrangement.”