Audits of Less Complex Entities Presented by Roger

Audits of Less Complex Entities Presented by: Roger Simnett, IAASB Member CAG Meeting New York, United States March 5, 2019 Page 1

Audits of Less Complex Entities Page 2

Audits of Less Complex Entities • SMP/SME versus less complex entities • Objective of work planned: – Develop Discussion Paper for public consultation – Explore possible actions to address issues identified relating to audits of less complex entities – Develop recommendations for IAASB consideration about appropriate way forward • Scope – Undertake information gathering to better understand issues – Obtain stakeholder views about possible IAASB actions • Related outreach – Roundtables (including second Paris Conference planned for May 2019) – Targeted efforts to hear from SMPs / SMEs Page 3

Audits of Less Complex Entities Discussion Paper • Background ‒ Influences on audit environment and their impact o Evolving business environment o Changing financial and non-financial reporting ‒ What others have done to react to changing environment o At a global level – IFAC: Developed a global ISA Guide for Audits of SMEs o NSS and others: Developed solutions for audits of SMEs (e. g. , national guidance, IT tools and ISA manuals) o Regional bodies such as Accountancy Europe: Engaged stakeholders through publications and events o Recent initiatives: § NRF published a consultation on a “Nordic Standard for Audits of Small Entities” § Sri Lanka issued “The Sri Lanka Auditing Standard for the Audits of Non-Specified Business Enterprises” § France considered new ‘pronouncement’ for audits that would fall below the minimum threshold for mandatory audits § Belgium published a standard on contractual audits of SMEs Page 4

Audits of Less Complex Entities Discussion Paper (Cont. ) • Background (Cont. ) ‒ What the IAASB has done to date, including what we have heard The IAASB’s Journey… What we have heard… o A strong need for better support for audits of smaller entities and less complex entities o Mixed views about need for a new separate standard o More needs to be done to understand the root-causes of issues relating to audits of smaller entities o Encouraged the IAASB to “think simpler first” o Emphasized need to utilize the advances in technology o Further consideration was needed: § To bridge the ‘expectations gap’ § About how to better promote audit value Page 5

Audits of Less Complex Entities Discussion Paper (Cont. ) • Issues and challenges – Issues and challenges not within the scope of the IAASB’s work on audits of LCEs o o Not within the control of the IAASB § Legal and other requirements for an audit § Commercial considerations relating to an audit § Technology / methodology § Education Scoped out of exploration activities related to audits of LCEs § Engagements other than audit § Value of an audit § Expectation gap Page 6

Audits of Less Complex Entities Discussion Paper (Cont. ) • Issues and challenges (Cont. ) – Issues and challenges within the scope of the IAASB’s work on audits of LCEs o Language and basic approach to the standards o Length of the standards o Documentation o Lack of clarity as to what needs to be done or why o Not enough guidance within / outside of the ISAs o ISAs noted particularly problematic Page 7

Audits of Less Complex Entities Discussion Paper (Cont. ) • Possible Actions to be explored Looking for stakeholders views on these – Revising the suite of ISAs – Developing a separate standard o Thinking outside of the box – Developing guidance – Enhanced accessibility of the ISAs – Continue doing what we are doing • Discussion Paper expected to be published April 2019 for 120 -day comment period Page 8

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