Date posted: 15/09/2021

A new approach for audits of less-complex entities

The IAASB is proposing a new single standard to simplify audits of less-complex entities.

In brief

  • The IAASB is proposing a new stand-alone standard for audits of less-complex entities
  • The proposals address feedback that the ISA suite is too complex at times for simple audits
  • CA ANZ needs your feedback to ensure this standard will work for members

The complexity of auditing standards and whether they are truly scalable for less-complex entities (LCEs) has been under discussion for some time. 

In response to these concerns, the IAASB issued a discussion paper in 2019 and has adopted a two-part approach to addressing the concerns about the complexity and scalability of auditing standards after analysing the feedback.

The first part of the approach is the CUSP (complexity, understandability, scalability, proportionality) project. This project is intended to develop resources for IAASB staff to address when drafting the standards and to ensure consistency and understandability. The CUSP principles will be applied prospectively as standards are revised or developed.

The second part is the development of a single LCE standard and the IAASB's exposure draft for this standard has just been released.

Key principles of the proposed LCE standard:

  • It is designed specifically for audits of less-complex entities.
  • It is based on the underlying concepts from the International Standards on Auditing (ISAs), including risk assessment, professional judgment and professional scepticism.
  • It is a stand-alone standard – practitioners using the standard will not have to refer to the ISAs.
  • It was developed to be understandable, clear and concise.
  • It reduces the risk of jurisdictional divergence by driving consistency and comparability globally.
  • It will achieve a quality audit engagement.

The consultation is open until 31 January 2022.

Main aspects to start thinking about

The exposure draft contains the specific matters the IAASB is seeking feedback on. Here are some of the matters raised during consideration of the discussion paper and the development of the draft standard:

  • What is a less complex entity – i.e., what entities should be able to use the standard? The exposure draft scopes out listed entities and group audits, is this the right approach?
  • What will this mean in practice for firms in terms of methodology and training etc? Will having a separate standard reduce complexity?
  • How often should the standard be updated?
  • How will an audit engagement be able to transition into (or out of) the single standard?

The AUASB and the NZAuASB will both issue their own exposure drafts and may include additional questions to address local issues. 

The adoption of an LCE standard would bring significant change to auditors of LCEs in both countries and we encourage you to provide feedback to us, or to either board, and look out for opportunities to participate in upcoming outreach events.

IAASB Exposure Draft

ISA for LCEs.

Read more

Have your say

Tell us what you think.

Contact us

Search related topics