As part of our webinar series covering the impact of APES 110 on SMSF accounting practices, we presented a quick summary of the APES 110 independence rules for SMSFs.
That summary was in the form of “ten commandments”. Our goal was to cut through the technical jargon and simplify the message to aid management and partners to understand the scale of the change and provide a clear understanding of the new constraints.
We have since had many requests for a copy of that summary and the related commentary, so here it is! You can download a PDF version here.
The 10 Commandments of APES 110 SMSF Audit Independence
The first five of these rules are about the business relationships that your firm can have:
- Thou shalt not do “in-house” audits – that is you cannot provide or manage, any of the financial advice, accounting or tax advice for a fund AND then audit that fund …“Chinese walls” don’t cut it anymore!
- Thou shalt not do “in-network” audits – the audit firm must be “truly independent” there cannot be any ownership, management or other commercial relationship between the audit firm and the accounting firm …e.g if you spin off your accounting division, it cannot have any other commercial arrangements with the accounting firm and this would include things like renting space from the accounting firm
- Thou shalt not “swap” audits – The “you audit mine and I’ll audit yours” type of “back-scratching” arrangement creates a conflict …you can’t do audits for someone who audits your clients!
- Thou shalt not do audits for a “recent” employer [The 2-year rule] – If you were to audit work done in the prior year, for an ex-employer, you would be auditing work that you may have had some input into, or influence over, which is a conflict …you need at least a 2-year gap to ensure that you’re not conflicted.
- Thou shalt not be “dependent” on your client [The 50% rule] – If any one accounting firm is providing more that 50% of your “SMSF audit work” then you’re conflicted …you need to decline the work or grow, quickly, to remove the conflict!
The remaining rules are at the fund level…
- Thou shalt not audit your Own fund
- Thou shalt not audit the SMSF of thy father or mother (or any other relatives!)
- Thou shalt not audit a Business partner’s fund
- Thou shalt not audit your Auditor’s fund
- Thou shalt not audit the same fund for 10-years [The 10-year rule]…WITHOUT external review
Note: the Routine and Mechanical exemption is not mentioned in the above because it is so narrow an exemption that it is unlikely to have any material impact on your business. See the webinar for more details on why the Routine and Mechanical exemption is NOT the loophole you are looking for.
The above is a brief summary of the but the above rules are the “new reality” that you, as an SMSF business, must contend with – for more details refer to the webinars, the APES Code and the APES Guide:
‘The Great Audit Conflict’ – APES 110 Independence
‘The Great Audit Conflict’ – Action Plans!
APES 110 Code of Ethics for Professional Accountants (including Independence Standards), November 2018, 211 pages
APESB Independence Guide Fifth Edition, May 2020, 112 pages