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Professional indemnity risks flagged with delaying new independence standards

While the ATO will not commence its compliance activities regarding the updated auditor independence guidance until 1 July next year, it has warned there may be other implications if firms delay adopting the changes such as professional indemnity risks.

SMSF Miranda Brownlee 06 October 2020
— 1 minute read

The ATO has previously announced that it plans to commence its compliance activities in relation to in-house audits from 1 July 2021.

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ATO director SMSF auditor portfolio Kellie Grant said this means that from this date, the ATO expects all completed audits to comply with the independence standards. 

“So this will include audits conducted for the 2021 financial year and any audits completed for previous financial years after this date,” Ms Grant stated in a recent podcast by sister brand SMSF Adviser.

Ms Grant warned that funds should actually be complying now where they can, however, “due to potential professional indemnity implications where insurers may refuse to compensate where audits are found not to be independent”.

For ATO compliance purposes, Ms Grant said that after 1 July 2021, as part of the ATO’s compliance reviews on auditors, when it sees an auditor has conducted an audit on a client that their firm has taken on management responsibilities for, including preparing the financial statements, it will expect to see evidence on the audit file demonstrating that the trustee made all decisions in relation to the management of their fund.

“This goes beyond the trustee just signing the trustee declaration in the financial statements or saying in a trustee representation letter that they have prepared the financial statements,” she said.

Ms Grant said the ATO hopes to issue further guidance to auditors by the end of the year which will cover further issues.

“In the guidance, we plan to discuss the key requirements in the restructured code and the type of evidence we want to see on the auditor’s file to demonstrate they have met those requirements. We also plan to highlight further independence issues firms need to be aware of when looking to restructure,” she said.

“We also plan to publish another article [this] month confirming when we will commence compliance action as, up until now, we have only published an article putting industry on alert about the restructured code, new independence guide and the new examples and saying we will use this year as educational one.”

Professional indemnity risks flagged with delaying new independence standards
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