Reciprocal SMSF Audit Arrangements: Do They Really Stack Up?
By David Saul, CEO & Managing Director – Saul SMSF
Since 1 July 2021, many accountants and SMSF administrators have been compelled to reassess the independence of their SMSF audit arrangements. This shift followed significant changes to APES 110 – Code of Ethics for Professional Accountants, and the release of the Independence Guide in May 2020. In parallel, the ATO has established a 20% referral threshold as a benchmark for assessing threats to audit independence.
In response, some Australian accounting firms—seeking to preserve fee income and sidestep compliance obligations—have entered into reciprocal SMSF audit arrangements, whereby two or more firms ‘swap’ the audits of their SMSF clients.
In this article, we ask: who ultimately bears the long-term cost when audit independence is compromised in favour of short-term revenue retention?
What Is a Reciprocal Audit Arrangement?
A reciprocal arrangement typically involves Firm A auditing SMSFs for Firm B, while Firm B audits SMSFs for Firm A. On paper, each avoids a “Chinese Wall” arrangement — a safeguard intended to prevent a firm from exerting undue influence on the (internal) auditor’s independence.
But does merely exchanging audit clients truly remove the underlying conflict — or does it simply shift the dependency sideways?
APES 110 and the Illusion of Compliance
While these arrangements outwardly present a picture of SMSF auditor independence, they give rise to significant threats under APES 110, particularly within its Conceptual Framework for Independence. These threats include:
- Self-interest threats — the fear of losing reciprocal revenue can erode objectivity
- Familiarity threats — close ties between firms may dull professional scepticism
- Intimidation threats — reluctance to qualify or report issues for fear of retaliation
- Advocacy threats — where firms feel obliged to defend one another’s work practices
APES 110 requires that independence be upheld both in mind and appearance. A reciprocal arrangement where a large volume of SMSFs are simply traded — often with informal understandings in place — does not meet the ethical test, even if it ticks the compliance box.
SMSF Audit Is No Longer a Side Gig — It’s a Specialisation
The reality is that independent SMSF auditing has evolved into a deeply specialised discipline. It now requires:
- Dedicated staff trained in SIS compliance and audit methodology
- Specialist systems integrated with Class, BGL, or similar platforms
- Rigorous quality assurance frameworks aligned with APES 320 and ASA 220
- Purpose-built manuals and review processes to meet ASIC and ATO scrutiny
Attempting to deliver high-quality SMSF audit services in-house — or through a reciprocal swap arrangement — often means diverting your best people to a low-margin, high-risk revenue stream. It’s not just an independence issue — it’s an inefficient use of top-tier accounting talent.
What Are the Real Risks for Trustees?
SMSF trustees place immense trust in their auditor — and rightly so. They rely on audit independence to detect breaches, uphold regulatory integrity, and act as a final safeguard when their accountant or adviser has overstepped.
As SMSF auditors, our greatest duty of care is to the trustees and members who do not have a voice — in other words, the most vulnerable members of an SMSF.
Reciprocal arrangements compromise this trust and expose trustees to:
- Undetected compliance breaches
- ATO scrutiny, with potential fund sanctions
- Legal liability, especially where issues are not reported or rectified
- A breakdown in audit objectivity, leaving trustees unprotected in the event of a dispute or review
In short: trustees lose when audit independence is structured around firm-to-firm convenience rather than professional rigour.
The Opportunity Cost of Hanging On
Many firms cling to their SMSF audits — or enter reciprocal arrangements — out of habit or fear of losing revenue. But consider this:
- How many of your best people are spending time on audit files that yield marginal profit and high liability?
- What would those same people generate if they were redirected to advisory, strategy, or client engagement?
- How much are you spending to maintain audit systems, templates, QA manuals, and compliance risk — just to keep audits in-house or within a reciprocal circle?
Reciprocal arrangements are often a form of false economy. You may preserve short-term revenue, but you lose efficiency, expose yourself to ethical breaches, and squander the true commercial value of your people.
A Better Way Forward: Letting Go With Confidence
There is genuine opportunity in letting go of reciprocal SMSF audit arrangements:
- Elevate your brand by demonstrating a commitment to ethical independence
- Refocus your people on value-creating services instead of regulatory compliance
- Partner with a specialist independent auditor who understands APES 110, ATO expectations, and modern SMSF risks
- Protect your clients — and your firm — from the reputational fallout of perceived conflicts of interest
At Saul SMSF, we’ve built our entire model around one thing: independent SMSF auditing done properly. That means ethical distance, quality systems, technical depth, and a proactive focus on protecting trustees — and the firms who refer them.
Final Thought
Reciprocal SMSF audit arrangements may offer the illusion of compliance — but they fall short of the independence, objectivity, and professionalism that SMSF trustees deserve.
So we must ask ourselves, as a profession:
Are we protecting trustees — or protecting our margins?
Because if independence is merely a revenue-preserving manoeuvre, then we’re not there for the right reasons.
Why It’s Critical to Value SMSF Assets at Market Value Now
With the proposed introduction of Division 296 tax legislation likely to take effect, it’s essential to ensure all SMSF assets are accurately valued at market value when preparing financial statements for the year ending 30 June 2025.
Why does this matter?
Accurate valuations could reduce your exposure to Division 296 tax by minimising potential unrealised gains occurred between 1 July 2025 and 30 June 2026. If your SMSF assets are correctly recorded at their market value as at 30 June 2025, the subsequent unrealised growth over the following year may be lower — potentially reducing the tax liability under Division 296.
Case Study:
Andrew’s SMSF was valued at $3.5 million on 30 June 2025 and grew to $4.2 million by 30 June 2026. He chose to retain the SMSF property’s January 2025 valuation for his 30 June 2025 reporting.
Andrew made no contributions or withdrawals, so his earnings for tax purposes totalled $700,000.Taxable portion over $3 million:
($4.2M – $3M) ÷ $4.2M = 28.57%
Division 296 tax = $700,000 × 28.57% X 15% = $29,999How to save $12,000:
If Andrew had obtained an updated independent valuation in June-July 2025, reflecting a revised market value of $3.8 million as at 30 June 2025, the earnings would be reduced to $400,000 (from $3.8M to $4.2M).
Taxable portion over $3 million:
($4.2M – $3M) ÷ $4.2M = 28.57%
Division 296 tax = $400,000 × 28.57% X 15% = $17,142Clearly, Andrew pays significantly less tax.
Keep It Realistic:
It is crucial not to artificially inflate the asset values. The ATO and SMSF auditors will closely scrutinise valuations which should be based on objective and supportable data in accordance with the ATO’s valuation guidelines. Annual market valuation for SMSF assets is a legal requirement under SIS Regulation 8.02B of the SISR.
Start now. Ensuring accurate market valuations for your SMSF for the year ending 30 June 2025 could potentially make a significant difference to your tax obligations under the upcoming Division 296 regime.
This article is general education only nor is it taxation or investment advice. Professional advice should be sought for personal circumstances.
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The Problem No One Has Time to Fix
Australian accounting firms are under increasing pressure.
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- …all while grappling with unreliable staffing, rising wages, and mounting employer obligations.
Add to that:
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It’s no wonder SMSF divisions are becoming bottlenecks in even the most capable firms.
The Elevate SMSF Solution
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We take independence seriously. Saul SMSF complies fully with APES 110, ensuring your audit remains conflict-free and professionally respected.
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If you’re tired of bottlenecks, chasing audit reports, or struggling to scale your SMSF services while maintaining profitability, Elevate SMSF is here to help.
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