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Australian Taxation Office considers outsourcing tax assurance for large businesses

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The Australian Taxation Office is setting up a pilot programme which could result in auditors of large businesses with turnover of between A$100 million ($95 million) and A$5 billion conducting assurance on behalf of the tax authorities.

The external compliance assurance process (ECAP) pilot will look at the effectiveness and viability of using existing registered company auditors to conduct assurance on factual matters.

“If effective, this approach will reduce compliance costs and red tape for business taxpayers and ensure that the right amount of tax is being paid in Australia,” an ATO statement said.

The ATO wants to be able to offer businesses the choice of using their own auditors to do the work or leaving it to the tax authorities.

The ECAP project began in November 2013 as a broad consultation with taxpayers and other stakeholders, with the work being split between three working groups: role and fit of tax advice; auditor independence and materiality and assurance.

The role and fit of tax advice group highlighted concerns such as threats to independence, cost and timing and when a matter in the ECAP process became contestable.

The members of the auditor independence group raised issues such as when the auditor’s firm has also provided the tax advice in a matter that is part of the ECAP process and the provision of an opinion over tax advice.

“This could open a discussion over whose view is correct and could require us to set up a review-the-reviewer process, which we seek to avoid,” the ATO said.

The materiality and assurance group were concerned about the risk of the ATO’s thresholds and risk metrics being disclosed in an ECAP process, and differences between materiality standards.

The pilot is expected to be in two phases under an agreed-upon process engagement. The first will be a small group that will test the design of an ECAP programme and work through any flaws, and will involve an ATO control group. The proposal is to limit the first phase to about 32 clients (16 ATO cases and 16 ECAP cases) with the clients spread being across the Big 4 and four tier 2 firms to start with.

“Depending on the results of the first phase, the second phase would involve a much broader pilot or integration into our ongoing compliance work,” the ATO said.

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