Auditor Independence, Ethics and Reporting Obligations
Independence
An approved SMSF auditor must be independent of the fund, its trustees, and members. Independence has two dimensions: independence of mind and independence in appearance. Threats include self-interest, self-review, advocacy, familiarity, and intimidation. Safeguards include rotation, separate engagement teams, and declining engagements where threats cannot be reduced.
Ethical obligations
Auditors must comply with the applicable code of ethics (integrity, objectivity, confidentiality, professional competence, and due care). Conflicts of interest must be identified and managed, and confidentiality must be maintained except where disclosure is required by law.
Reporting obligations
Where the auditor identifies a contravention meeting the reporting criteria, they must issue an auditor contravention report to the ATO (and the trustees) within the required timeframe. The auditor must also issue the IAR with the annual return. Failure to report can expose the auditor to penalties and disciplinary action.
Traps in questions
- Assuming independence is satisfied because the auditor is not a trustee; familiarity with a long-standing client can still impair independence.
- Missing the distinction between a breach that is reportable and one that is not.
- Overlooking the timeframe for lodging the contravention report.
- Confusing the auditor's duty to report with the trustee's duty to rectify.
Worked example
An auditor discovers a loan to a member's business exceeding the 5% in-house asset limit. The auditor documents the finding, considers whether it meets the reporting criteria, and if so issues a contravention report to the ATO and trustees, and qualifies the IAR where appropriate.