ATO issues fresh warning on in-house audits

In a recent update, the ATO has warned SMSF auditors that in-house audits remain on its radar, with the ATO still undertaking reviews in this area.

"In a recent review using data matching, we focused on auditors who still perform in-house audits," the Tax Office said.

"Our risk assessment shows around 800 auditors might still be doing in-house audits."

The ATO reminded auditors that since 1 January 2020, auditors have not been allowed to perform in-house audits unless other services provided are routine and mechanical, the firm addresses any independence issues, and the firm does not assume a management responsibility for the audit client

An in-house audit refers to an auditor who works for a firm, or network firm, that also provides services like accounting or administration to the same SMSF clients.

The Tax Office said it was difficult for firms to meet the rules, particularly the routine and mechanical test, due to the professional judgment involved.

"When we review auditors, we contact SMSF trustees to check their role in preparing the funds accounts and statements," it said.

In one of the ATO's recent reviews, it reviewed 30 auditors suspected of doing in-house audits. As a result of these reviews:

• 14 auditors were referred to ASIC.
• 6 auditors were deregistered voluntarily.
• 8 auditors received education.
• 2 auditors were compliant.

"Since 1 July 2021, we have referred 42 auditors to ASIC for various reasons including in-house audits, this was 32 per cent of all referrals.

In March 2024, ASIC issued a statement outlining the actions it had taken against 15 of the 42 referred auditors.

"Firms must follow independence requirements when planning their structure and their audit engagements. They should not rely on one referral source for their fees," the Tax Office said,

"ASIC suspended three high-volume SMSF auditors linked to an SMSF administration provider for not considering these factors."