According to the International Auditing and Assurance Standards Board (IAASB) “Worldwide, small- and medium-sized entities account for more than 90% of businesses and more than 50% of employment”.
Currently auditors are required to apply the same auditing standards to every audit assignment, regardless of the size and complexity of that company. However, whilst audits can and should be tailored to an entity’s situation, changes to standards over the years to help improve quality has meant that the audits of simple companies, arguably becomes more focused on compliance with those standards, and less about the risks and nature of the company itself.
There has been much discussion about how entities with straight forward structures, processes and low levels of transactions could benefit from an audit standard tailored to them, or what is becoming known as the “Less Complex Entity (LCE)” audit standard.
The IAASB issued their project proposal in December 2020 and since then they have issued an Exposure Draft for key players to comment on, the consultation period for which closed at the end of January 2022.
The next key stage for final approval is of the exposure draft in March 2023.
What will this mean for the audit of UK companies?
Currently, we are required to apply the standards as set by the Financial Reporting Council (FRC). The FRC works closely with organisations such as the IAASB and we will therefore need to wait for the FRC to advise if the UK will adopt the final proposed standard.
What is an LCE?
That is a good question, and we will have to wait to see how an LCE is defined in the final proposal.
The standard is also likely to set out what is not an LCE too, for example a listed company, a group audit, or where the company falls under a jurisdiction where the standard is not recognised.
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Date Published: 10 June 2022