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Auditor independence

What to understand about complying with independence requirements as an approved self-managed super fund (SMSF) auditor.

Last updated 1 April 2025

Independence requirements

SMSF auditors must comply with independence requirements as part of their professional obligations under the:

The independence requirements are set out in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (2018) (APES 110External Link) produced by the Accounting Professional & Ethical Standards Board. They are effective for all audits from 1 January 2020.

Auditing Standard ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements also requires auditors to comply with the independence requirements of APES 110 when carrying out assurance engagements, such as the annual financial and regulatory compliance audit of an SMSF.

If you suspect a firm or network firm is not meeting the independence requirements, you can tell us by making a tip-off.

Applying the conceptual framework

For each audit engagement, you must apply the conceptual framework set out in APES 110External Link when assessing independence. In broad terms, this involves:

  • identifying any threats to independence
  • evaluating whether those threats are at an acceptable level
  • addressing any threats that are not at an acceptable level by taking appropriate action.

Threats to independence generally fall into one or more of the following categories:

  • self-interest
  • self-review
  • advocacy
  • familiarity
  • intimidation.

APES 110 requires you to maintain both independence of mind and independence of appearance. In order to maintain independence of appearance it is not sufficient that you are able to form your conclusions with appropriate integrity, objectivity and professional scepticism. You must also decide whether a reasonable and informed third party would conclude that the arrangements resulted in unacceptable independence threats.

APES 110 contains specific standards in relation to some arrangements that give rise to independence threats. However, you must apply the conceptual framework to all arrangements that could threaten your independence, regardless of whether the arrangement is specifically discussed in APES 110.

You must address any threats that are not at an acceptable level by either:

  • eliminating the circumstances (including interests or relationships that are creating the threats)
  • applying safeguards, where available and capable of being applied, to reduce the threats to an acceptable level
  • declining or ending the audit engagement (or the engagement for other services that is creating the threats).

Safeguards are actions, individually or in combination, that you take to reduce the threats to independence to an acceptable level. Whether a particular safeguard is effective will depend on the type and particular characteristics of independence threat that is being addressed.

You must document the independence assessments that you perform even where you conclude that the independence threats are already at an acceptable level. The documentation must describe:

  • the nature of the threat
  • your application of the conceptual framework and any other standards in APES 110 that apply to the arrangement
  • your assessment of the level of threat
  • any safeguards that you applied
  • your rationale for concluding that the threat was at an acceptable level after the application of safeguards (if applicable).

Appropriate reviewer requirements

APES 110 suggests that having an 'appropriate reviewer' review the auditor's work may be an effective safeguard for some types of independence threat.

The term ‘appropriate reviewer’ is defined in APES 110 as meaning: a professional with the necessary knowledge, skills, experience and authority to review, in an objective manner, the relevant work performed or service provided.

Appropriate reviewers also need to apply the independence standards to their reviews. Threats to the auditor's independence could also threaten the appropriate reviewer's activity. For example, another SMSF auditor working at the same firm who is considering acting as an appropriate reviewer:

  • may also benefit from the fees generated by the large referral source
  • is likely to experience the same self-interest and intimidation threats.

These threats might affect the internal reviewer’s ability to perform reviews in an objective manner. Therefore, the appropriate action may be to engage another SMSF auditor external to the firm to conduct the review of the audits.

Appropriate reviewers need to assess:

  • whether they can undertake reviews in an objective manner
  • the nature and extent of procedures to be performed to reduce the independence threats to an acceptable level.

A sampling approach might be suitable in situations where independence threats arise from the auditor receiving a large proportion of their fees from the one referral source. In this case, we expect the reviewer's notes in the audit file explain:

  • why sampling is an effective approach to the review
  • what sampling methodology was applied.

If a sampling approach is adopted, we expect a risk-based selection of the sample of funds for review. It should be representative of all the SMSF audits, ranging from simple to complex funds. However, we would also expect the sample to include a significant proportion of the more complex funds where the auditor exercised a higher level of professional judgment when conducting the audit.

The auditor whose work was reviewed must receive and retain documentation from the reviewer that explains:

  • the steps taken to complete the review
  • the outcome of the review
  • if they concluded the auditor’s reports were appropriate.

Things we focus on when checking auditor compliance with independence requirements.

QC65083