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  • Providing tax and financial planning services

    Preparing SMSF annual returns

    If an auditor only prepares a self-managed super fund's annual return (SAR) for an SMSF, this will not generally give rise to an independence threat.

    This is because such a service ordinarily involves the auditor collecting, analysing and presenting data from the fund’s accounts and financial statements in accordance with established tax law and practice, and calculating the amount of tax payable based on that information. The SAR is submitted to us in an approved (standard) form and may be subject to review by us. The service may also involve related tasks such as advising trustees on the past tax treatment of certain transactions and communicating with us to discuss tax return matters.

    However, there are some tax services provided by an auditor to an SMSF that are prohibited by the Code, and others may give rise to independence threats that need to be evaluated and addressed.

    Providing other tax services

    Firms are prohibited from providing the following tax services to the trustees of an SMSF that the firm audits:

    • tax planning and other tax advisory services – when the effectiveness of the tax advice depends on a particular accounting treatment or presentation in the financial statements, and there are reasonable doubts as to the treatment or presentation, and the outcome or consequences of the advice will have a material effect on the financial statements
    • tax services that involve assisting in the resolution of tax disputes – where the services involve acting as an advocate before a public tribunal or court in resolution of a tax matter, and the amounts involved are material to the financial statements on which the firm will express an opinion.

    Providing other tax services may give rise to independence threats, including any of the following:

    • tax planning and other tax advisory services not covered by the above prohibition (self-review or advocacy threats)
    • tax calculations of current and deferred tax liabilities (or assets) for the purposes of preparing the accounting entries for the fund’s financial statements (self-review threats)
    • tax services involving valuations (self-review or advocacy threats)
    • assistance in the resolution of tax disputes referred to a court or tribunal not covered by the above prohibition (self-review or advocacy threats).

    Whether the threats are at an acceptable level will generally depend on such factors as the:

    • nature of the engagement
    • skills and tax expertise of the trustee(s)
    • auditor’s role in providing the service
    • complexity of the matter and service
    • degree of judgment the auditor is required to exercise.

    Additional factors relevant to evaluating the level of threats for each tax service are set out in the Code. For example, the following are relevant factors in relation to:

    • preparing tax calculations – whether the calculation will have a material effect on the financial statements being audited
    • tax advisory services – considerations such as  
      • the degree of subjectivity involved
      • the extent to which the outcome of the advice will have a material effect on the financial statements
      • whether the tax treatment or advice is supported by established tax law and practices, a private ruling or otherwise approved by us.
       

    If the threats are not at an acceptable level and the circumstances creating the threats cannot be eliminated, auditors will need to consider whether there are any appropriate safeguards that can be put in place.

    Examples of safeguards include:

    • using a professional not involved in the audit to perform the tax service, such as having a separate partner and team perform the service
    • having a reviewer not involved in the tax service review the audit or tax work
    • obtaining advice (pre-approval) from us in relation to the tax matter.

    What may constitute an appropriate safeguard will depend on the circumstances and type of tax service as set out in the Code.

    If no safeguards are available or capable of being applied to reduce the threats to an acceptable level, the auditor will need to decline or end the audit or tax service engagement.

    Providing financial planning services

    If a firm has provided financial planning advice to an SMSF trustee, it is likely that auditing the fund will give rise to self-interest and self-review independence threats.

    This is because there is a risk the advice will inappropriately influence an auditor’s judgment or behaviour, and the auditor may not properly evaluate the results of the advice as part of the audit.

    Firms need to evaluate whether any independence threats created by providing the services are at an acceptable level, having regard to such factors as:

    • the type of financial planning advice provided
    • the nature of any recommendations made
    • the reliance that will be placed on the outcome of the advice as part of the audit
    • the extent of professional judgment involved in providing the advice
    • the remuneration structure of the firm
    • whether the advice will affect matters in the financial statements.

    The regulatory context in which SMSFs operate will make it difficult for firms to prove that they can independently assess the outcome of financial planning advice provided by the same firm.

    In many cases the threats will not be at an acceptable level. The firm will need to decline or end the audit or non-assurance service engagement where:

    • the circumstances creating the threats are not able to be eliminated, and
    • there are no appropriate safeguards that can be applied to reduce the threats to an acceptable level.

    Next steps:

      Last modified: 01 Apr 2021QC 65083