Both preparing the financials and auditing an SMSF could well be a threat to independence.
Independence day
Q: Can I prepare the financials as well as be the auditor of a self-managed super fund (SMSF) at the same time?
A: APES 110 Code of Ethics for Professional Accountants ('the code') issued by the Accounting Professional and Ethical Standards Board sets out the fundamental principles of professional ethics, and provides a conceptual framework for applying those principles.
It gives considerable attention to auditor independence in relation to audit and assurance engagements.
Independence is potentially affected by self-interest, self-review, advocacy, familiarity and intimidation threats.
The code specifies that if a threat(s) is identified, safeguards should be put in place to eliminate or reduce them to an acceptable level. The code further states that if the identified threat(s) cannot be eliminated or reduced to an acceptable level through the application of safeguards, the practitioner should, as appropriate, decline or discontinue with the engagement(s) or where necessary resign from the engagement(s).
Section 200.5 of the code states that a self-review threat is created when 'the original data used to generate records ... are the subject matter of the Engagement'. That is, where the role of preparing the financials and the role of forming a view on those accounts (for instance, auditing the financials) are simultaneously held.
Where potential or actual threats are identified, safeguards should be put in place to ensure any potential for self-review threats are eliminated or reduced to a satisfactory level. Section 200.10200.15 of the code contains further information relating to the types and examples of safeguards.
In the case of a single firm, where the intention is for the roles of the preparer of the financials and the auditor of the financials to be separated, there should be sufficient and appropriate documentation of the safeguards that have been put in place. This should cause the auditor to be satisfied that any self-review threat has been eliminated or reduced to a satisfactory level.
In the case of sole practitioners, if practitioners are involved in preparing the financials, they should generally refrain from also undertaking the role of the business' auditor.
Undertaking both roles constitutes a form of self-review threat that, under most circumstances, would be difficult to be satisfactorily reduced by putting in place any form of safeguards.
But if the practitioner is satisfied the threat could be reduced to a satisfactory level by putting in place one or more safeguards (for example subjecting the audit to engagement quality control review to provide an external independent review), there should be sufficient and appropriate documentation of matters such as the circumstances of the engagement, the safeguards put in place and how they are applied.
ASA 220 Quality Control for Audits of Historical Financial Information, issued by the Auditing and Assurance Standards Board, provides guidance in relation to engagement quality control review.
