Reciprocal SMSF Audit Arrangements: Do They Really Stack Up?

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.