SMSF auditor independence: the 2021 APES 110 rules every trustee should know

Since 1 July 2021, the firm that prepares your SMSF's financial statements can no longer also audit them. The change came from a restructured APES 110 Code of Ethics issued by the Accounting Professional and Ethical Standards Board, and it has reshaped the Australian SMSF audit industry. If your fund is still using a 'one-stop-shop' provider that does both, you may have an audit independence problem — and the ATO has been actively reviewing referral patterns.

What APES 110 actually says

APES 110 is the ethics code that all CA ANZ, CPA Australia and IPA members must follow. The 2020 restatement of the code closed a long-standing loophole that had allowed firms to 'self-review' SMSFs by performing both the accounting and audit work, with separate engagement partners. From 1 July 2021, this is no longer acceptable unless the audit work is performed by a genuinely separate firm.

The three independence threats most relevant to SMSFs

• Self-review — auditing financial statements your own firm prepared
• Familiarity — long, close relationships with the same trustees over many years
• Self-interest — referral fee arrangements, or audits priced below cost as a loss leader

What this means for trustees in practice

Your SMSF accountant or administrator must now refer the annual audit to a genuinely independent SMSF audit firm. A common arrangement is a reciprocal referral pool — Firm A audits Firm B's funds and vice versa — which is allowed provided neither firm performs both roles on the same fund. Many trustees never meet the auditor directly; the administrator coordinates the engagement, provides the records, and forwards any audit findings.

Red flags that suggest your current arrangement may not be compliant

• Your annual audit invoice comes from the same firm or trading name as your accounting invoice
• The 'auditor' has the same office address, phone or email domain as your accountant
• Your audit fee has been the same suspiciously-low amount for many years
• You have never received a separate engagement letter from the audit firm

Who can audit an SMSF?

Only an Approved SMSF Auditor registered with ASIC can sign the audit report. There are about 4,500 registered SMSF auditors in Australia. ASIC publishes the full register at asic.gov.au, and you can verify any auditor's SMSF Auditor Number (SAN) before each year's audit. The auditor's SAN appears on the audit report and is reported to the ATO in the SMSF Annual Return.

How easySMSF handles audit independence

easySMSF performs the fund accounting and tax work in-house, and refers every audit to an external Approved SMSF Auditor with no common ownership, no common staff, and no shared profit pool. The audit fee is quoted by the auditor directly and is included in our flat monthly fee for transparency. Your fund's SAN is verified by us against the ASIC register before lodgement each year.

Sources: APESB — APES 110 Code of Ethics for Professional Accountants (Including Independence Standards), restated 2020; Australian Taxation Office — SMSF auditor independence (ato.gov.au); ASIC — Register of approved SMSF auditors.