Ironically, the industry’s response to the impending change of legislation can be somewhat aligned with the stages of grief. We encourage firms to determine where they’re at in their stage of the “acceptance cycle” to escalate their resolve to minimise disruption:

1. Anger and outrage: This was typically the initial reaction when accountants first heard of the new rules outlined in APES110. If you find yourself still making comments such as, “We’ve been doing these audits internally for years without any problems”, or “Why is the ATO picking on us now?” then it’s really time to move on.
   
   
2. Denial: A common tendency for those professional stuck in this stage is a tendency to rationalise away the impact of the changes (a.k.a. burying one’s head in the sand). Common refrains from partners stuck in this stage include: “These changes won’t significantly impact on what we do”, or “I’m sure we can come up with a hassle-free solution by swapping with associated firms and/ or retired partners”. Even a cursory review of the rules contained within APES110 highlights that these “simple” solutions won’t satisfy the much stricter independence regime. In effect, they are merely swapping an internal auditor with another party that is only slightly less compromised. Dwelling in this stage might provide a sense of superficial comfort; however, firms with this mindset will ultimately be forced to move on. There is no upside in staying in this state however you combat or rationalise it.
   
   
3. Annoyance, distress and dread: In this stage, the firm realises that the new independence rules are here to stay and that they will have a serious impact upon their operations. This is usually accompanied by a growing sense of dread as partners contemplate the expected negative impact of changes to the firm. Areas of concern include:
   
   • Additional time required to complete SMSF engagements due to having to involve an extra, external party
   • Additional administrative steps and procedures to enable the funds to be audited externally
   • Reduced revenue through the loss of audit fees
   • Need to communicate changes to their SMSF client base

Be mindful of catastrophising the potential impact of change and “legitimise” regressing to Denial. Instead, firms are encouraged to escalate their mindset to the next stage.

4. Acceptance (usually with a degree of reluctance): This seems to be where the lion’s share of the industry is at present, or at least moving to. Unfortunately, accepting the situation is meaningless unless concrete action is taken. Disorganised firms will probably come to this point close to 30 June 2021 in a mad rush when they realise they’ve run out of time and can’t delay the changes anymore. As a result, their due diligence of auditor selection may not extend beyond a quick Google search and a few phone calls as they try to find an SMSF auditor who will take on their SMSF clients. Don’t be this firm if you’re serious about minimising disruption to your firm and your clients.
5. Resolve (the due diligence process): There are a variety of benefits that flow from conducting a thorough due diligence process when exploring options to become APES110 ready. It is strongly recommended that firms start this due diligence process by 1 February as there is a great deal to consider.
   
   
6. Optimism and opportunity: Is there such a thing? Often the answer is yes, and firms who embrace change early will be a step ahead of the game. At this stage, the firm will have at least one good option to satisfy their external SMSF audit needs and the mindset will have fundamentally changed (spoiler alert: the positive approach to change must be genuine and not mere lip service). Partners and senior staff are now focused on the opportunities enabled by transferring SMSF audits to an external party. Such benefits may include:
   
   • Being able to use the experience and SMSF technical knowledge of the external auditor as a sounding board when SMSF issues and scenarios arise (or have the external auditor manage upon the firm’s behalf)
   • Lowering future litigation risks
   • Removing an often-problematic focus of professional quality assurance reviews
   • Enhancing the firm’s client relationships by being able to use the external auditor as the “bad cop” to push back on trustees attempting aggressive and/or risky strategies involving SMSFs
   • Focusing on additional revenue-generating activities
   • Extending the firm’s service offering

We urge firms to complete this stage by 1 March to allow enough time for teething problems to resolve before the pace starts to intensify from April, as well as avoid the probable capacity challenges expected from May. Conversely, the level of disruption arising from the changes is expected to materially heighten for practices that postpone their operational adjustments.

About Chris Levy

Chris Levy established Aquila Super in 1997 in response to the growing demand for an independent accounting practice that could provide specialist audit and compliance services for SMSFs, and is now responsible for audits and business development. He is a chartered accountant, a registered SMSF auditor, and is recognised as an SMSF Specialist Auditor™ with the SMSF Association.