Accountants in public practice are required to document and communicate their terms of engagement with potential and existing clients.
The Accounting Professional and Ethical Standards Board Limited (APESB) recently updated APES 305 Terms of Engagementwhichoutlines what should be in an Engagement letter and gives guidance on when an Accountant in public practice should accept and continue engagements with clients.
The update will require Accountants to assess whether they need to include detailed information about outsource arrangements and their use of cloud software.
From 1 July 2021, Accountants (including SMSF administrators in public practice) may be required to include the following in their Engagement letter:
- The details of any outsourced service provider;
- The geographic location of where the outsourced services are performed; and
- The nature and extent of the outsourced services.
New guidance asks the Accountant to consider if the outsource arrangement is a “Material Business Activity” that has the potential to impact the quality, timelessness and scale of the professional services offered or received by the client.
The guidance examples include an Accounting firm outsourcing SMSF work, and indicates this service may be a “Material Business Activity” where 5% or more of clients serviced (or revenue derived) is being outsourced. However, the guidance states it is also necessary to conduct the evaluation from the Client’s perspective. For SMSF’s it is best practice to utilise a sole purpose corporate trustee and it would be this entity who is engaged as the Client. As no other services would be provided to this Client (as it has no other purpose than to be trustee of the SMSF) then from the Client perspective, 100% of the service being provided is the SMSF work so the new disclosure would be required if this work is being outsourced.
Similar disclosures are required if cloud computing is utilised. The definition of cloud computing services is computing resources that are usually provided by a third party over the internet to a Member in Public Practice, including on-demand access to networks, servers, data storage, databases, software, and applications.
There are likely to be some tough conversations between Accountants and their clients about these changes. In some cases, the client’s may not be aware of where the accounting function is being performed and how much of the function is being sent offshore.
The new changes to APES 305 Terms of Engagement will ensure clients have greater visibility of the SMSF service they choose to engage with. Client’s will now be better informed and have the correct information when choosing which Accountant or Administrator to engage.
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