IFAC guide to using international standards on auditing in the audits of small - and medium-sized entities

Comments from ACCA to the International Federation of Accountants (IFAC), September 2009.

ACCA is pleased to have the opportunity to comment on the above documents (the 'ISA Guide' and the 'QC Guide').

ACCA is the largest and fastest-growing global professional accountancy body with 131,500 members and 362,000 students in 170 countries.

We aim to offer the first choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. ACCA works to achieve and promote the highest professional, ethical and governance standards and advance the public interest.

general comments

We congratulate the Small and Medium Practices Committee (SMPC) on issuing these documents designed to assist auditors of small- and medium-sized entities (SMEs). It is through such initiatives that the International Federation of Accountants (IFAC) can promote high levels of service from professional accountants to SMEs, which contribute substantially to the global economy.

In the main, we find that the Guides are well constructed and understandable but certain of their characteristics make them less likely to be used directly by SMPs: they are long, case study material is included and is more directly applicable to larger SMEs, and the level of the material appears more suited to trainees than to experienced auditors. These characteristics have been dealt with at length in certain UK responses to the SMPC relating to the ISA Guide and so are not repeated here. ACCA has expressed its support to the Auditing Practices Board (APB) for the response provided by that body's SME Audit Sub-committee (on which some of our members serve) and we commend that to the SMPC.

We recognise that the Guides are more suited to use as training and reference material. Although they are non-authoritative guidance, they nevertheless allow training materials, software and documentation to be developed in a manner that benefits from consistency between jurisdictions and full compliance with standards.

We suggest, nevertheless, that more should be done to make the Guides directly relevant to practitioners. This would be of most benefit for those in jurisdictions with relatively less infrastructure capable of providing professional support. We suggest that the Guides should:

  • Be available in a form that, through conciseness, facilitates access by experienced auditors (for example excluding case study material and material designed to communicate simple training points). The use of a hyperlinked PDF format goes much of the way towards this for those familiar with on-screen access, but this is not always feasible.
  • Highlight and explain significant changes in standards and their implications for the SME audit. Each regular updating of the Guides provides an opportunity to do this. Such material is not only useful in itself, but attracts attention to a publication that might otherwise be seen as static. This approach also promotes the discipline of publishing updates on a timely basis, which will lessen the risk that practitioners refer to material that is no longer current.
  • Include guidance on minimum documentation rather than (as in the case study material) illustrating comprehensive 'best practice' for the audit of a larger SME. In this regard, we commend to the SMPC the concise and practical approach in the APB revision to Practice Note 26 Guidance on smaller entity documentation. That provides a benchmark allowing practitioners and regulatory monitors to avoid misunderstandings over the level of documentation.

The above changes could also be effected through the issue of one or more separate publications and the SMPC will also wish to take account of implementation material issued by the International Auditing and Assurance Standards Board (IAASB). There is, however, an advantage in having the Guides as the main points of reference.

The SMPC will be aware of current projects of the IAASB in relation to standards for reviews and other related services. Such engagements are particularly relevant to SMPs, especially in jurisdictions where there is exemption for smaller entities from statutory audit. We welcome the announcement in the Strategic and Operational Plan for 2009 – 2012 that the SMPC is strategically committed to facilitating implementation of standards issued by IFAC's independent standard-setting Boards. We suggest that this should result in the SMPC's active consideration of the need for a Guide or Guides to such standards in due course.

ACCA's answers to SMPC's specific questions relating to the QC Guide

(1) How do you use the Guide? For example, do you use it as a basis for training and/or as a practical reference guide, or in some other way?

Please refer to our general remarks.

(2) Is the cross-referencing to ISQC 1 sufficient for easy use while reading the Guide? 

Yes. It is somewhat inconsistent, however, to reproduce paragraphs from ISQC 1 verbatim while material in ISA 220 is dealt with by cross-reference. ISA 220 is also dealt with in the ISA Guide, but so is ISQC 1 in appropriate contexts (such as client acceptance and continuance) and its requirements are again reproduced. Within IAASB standards, requirements are not reproduced with the application material but there is a comprehensive level of cross-referencing. The elimination of reproduction and reliance instead on cross-referencing would shorten the Guides considerably and encourage users to have active knowledge of the primary texts. We suggest that while the current approach is acceptable the SMPC should keep it under active consideration at each update to take proper account of user feedback and improvements in computer technology

(3) Do you believe that the Guide has appropriately integrated all of the relevant standards into the quality control process? Are there elements you would like to see added to or deleted from the Guide?


(4) Do you consider the Guide to be responsive to the key firm level issues of quality control for small- and medium-sized practices?

Yes. The key issues vary significantly across the range of practices that may be described as SMPs and we welcome the recognition that the QC Guide gives to this, for example by presenting samples of quality control manuals separately for a sole practitioner and a partnership.

(5) Do you find the Guide easy to navigate? If not, can you suggest how navigation can be improved?

Yes. However, please refer to our general remarks; as on screen access may be substantially enhanced, for example by the use of appropriate delivery programs.

(6) In what other ways do you think the Guide can be made more useful?

Please refer to our general remarks.

(7) Are you aware of any derivative products - such as training materials, forms, checklists, and programs - that have been developed based on the Guide?If so, please provide details.

None has been published in the UK to our direct knowledge, although ACCA and others will have considered the QC Guide in relation to such matters.

Last updated: 11 Apr 2012