Big business set to choose private auditors over ATO under controversial reform

Big businesses are edging closer to paying private companies to do audits in place of the Australian Tax Office (ATO) in a move described as putting a fox in charge of the hen house.

The ATO said a pilot program using a small number of companies earning between $100 million and $5 billion would be launched in July. 

The ATO's deputy commissioner of public groups and international Shane Reardon said "providing taxpayers with the tools to undertake self-assurance makes sense in today’s business environment".

Mr Reardon said it would remain in control of "the procedure and outcomes" during the four-month trial and noted the agency had been operating in a self-assessment tax system for almost 30 years. 

The proposed reform, now being tested, was one part of sweeping reforms at the tax office led by commissioner Chris Jordan.


Mr Jordan is attempting to bring the ATO in line with more progressive tax collection agencies globally - the ATO has been influenced by operations in Singapore and the Netherlands - while absorbing a massive cut to his workforce totalling 4700 staff by 2018. 

Part of the reforms involve the introduction of a new tick-and-flick system for taxpayers that will reduce the need for up to 1.4 million Australians to lodge returns and setting up voice recognition technology to save money on staff and 45 seconds per call for customers who phone the agency.

The ATO's intentions to reform the auditing of big businesses were first revealed last September and prompted concern among unions and the opposition. 

Do you know more? Send your confidential tips to

Mr Reardon said the decision to go ahead with the pilot, known as the External Compliance Assurance Process (ECAP), followed in-depth consultation with industry, regulatory bodies and taxpayers.

"Under the pilot, some companies with a turnover of between $100 million and $5 billion will be offered the option of using their existing statutory auditor to undertake assurance work on matters identified by the ATO," Mr Reardon said.

"The co-design with stakeholders has guided development of a model that maintains the integrity of the tax system while reducing red tape for taxpayers."

A steering group made up of representatives from the ATO and industry associations will observe the pilot and provide advice.

"If adopted, ECAP will allow the ATO to redirect resources to higher risk matters in the public groups and international market," Mr Reardon said.

"The pilot will be limited to factual matters only, for example matters in relation to research and development and capital gains."

A minimum of eight audit firms covering 16 taxpayers would take part in the initial phase of the pilot which ends in October 2014. 

Fraser MP and shadow assistant treasurer Andrew Leigh said it was concerning the ATO was planning to allow corporate auditors, paid by large companies, to conduct assurance reviews on the ATO’s behalf.

"Allowing big business to look after their own tax is like putting a fox in charge of the hen house," Dr Leigh said.

"It creates a conflict of interest.

"It appears the ATO is being forced down this path by the Abbott government’s massive cuts to the public service.

"I urge the government to exercise caution, to weigh up the public interest and ensure it doesn’t result in less tax revenue being collected."