ACCA welcomes the opportunity to contribute to the Financial Reporting Council’s (FRC) market study into the challenges faced by small and medium-sized Enterprises (SMEs) in relation to audit and reporting. Our comments build upon those shared in the FRC’s SME market study.  ACCA remains supportive of the FRC’s efforts to reduce the reporting burden, agreeing with the issues identified and direction of potential remedies. ACCA’s overarching message is that the focus should be on complexity rather than size — given that an entity may be large but still be less complex.

ACCA continues to advocate a ‘think small first’ approach in applying auditing standards to the audits of smaller and non-complex entities. The approach reflects ACCA’s 2018 research, Thinking small first: Towards better auditing standards for the audits of less-complex entities, and the belief that standards should have a simple basis from which to build.  This contrasts with the current landscape, where SME audit requires navigating the full suite of UK ISA requirements – many of which are disproportionate to smaller entities. Alongside responses to specific questions, ACCA makes the following recommendations:

• The FRC should follow a formal consultation process and allow stakeholder feedback on the IAASB’s International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE).
• Prioritise practical examples that support clearer, proportionate application of UK ISAs, the Revised Ethical Standard 2024, and ISQM (UK) 1. Guidance should also cover use of innovative technologies and tools like AI-driven analytics.
• Consideration should be given to sector-specific guidance reflecting the operational realities of different industries, such as the construction, hospitality, and manufacturing sectors.
• Educational materials, SME-specific case studies, and collaboration with software providers can promote deployment of innovative technologies, while also bridging existing knowledge gaps.
• Fastrack development of stakeholder materials that communicate value of SME audit, the reasons why SMEs obtain financial audits, while ensuring that benefits are not conflated with administrative burdens.
• Address the expectation gap within the UK audit market by improving public, investor, and SME understanding of audit work.

To read our comments in full, please download the document found on this page.