ATO considers plan to outsource big business tax auditing, but SMEs don’t get a look in

The Australian Taxation Office is considering allowing big businesses to use their own accountants to provide assurance to the ATO on certain matters.

If they go ahead, the changes – as outlined on the ATO website – would generate cost savings for the ATO, reduce regulatory burdens on big business and effectively privatise an element of tax authority.

The changes have been developed over the past 18 months. However, tax experts say the “transformational” plan is still in its early stages.

The external compliance assurance process (ECAP) would see basic assurance work being done by existing external private sector auditors with experience in auditing big firms.

ECAP would only be an option for companies identified as low to medium risk turning over between $100 million and $5 billion.

The ATO has begun consultations with industry bodies and accounting firms and the sector is generally positive about the initial proposal.

The Tax Institute senior counsel Robert Jeremenko told SmartCompany over a day-long consultation was held with industry figures over Christmas.

“It’s another example of fresh, outside of the box thinking from the commissioner, Chris Jordan,” he says.

“The Tax Office is under pressure to cut costs and shed its head count, so it’s encouraging to see it’s looking at ways to reduce costs, as well as the regulatory burden on companies being audited.”

Jeremenko says the ATO is looking to “tap into the expertise” of the auditors used by big companies to go over their books.

Sceptics have raised concerns it could create the ability for the process to be corrupted and possible conflicts of interest.

Jeremenko says these issues would be unlikely to occur because of the high ethical standards of the industry.

“The professional ethics of auditors and accountants are very robust. Should this program eventuate, their professional ethics to act in the best interests of the Tax Office would prevent them from doing anything,” he says.

“Businesses certainly wouldn’t get a free ride.”

Under the current proposal, businesses would be given the option to use their own external auditor for certain matters to carry out fact-checking. However, if the company did not wish for this to occur, the ATO would conduct the review as per usual.

At this stage there is no guarantee the proposal will go ahead and SmartCompany understands there is some resistance from within the ATO.

Nexia taxation consultant Sean Urquhart told SmartCompany it would be a wise move from the ATO because it would put the cost onto the taxpayer.

“It would be a windfall for the big firms around town because the proposal is to limit the external reviewers to those experienced with companies with revenue between $250 million and $5 billion,” he says.

“What needs to be clear though is that it’s only basic assurance work being outsourced. The auditors would only look at factual matters; they won’t substitute the commissioner’s review. The issues are black and white, there will be no interpreting of the law involved.”