‘Think small first’ – ACCA responds to concerns on auditing standards for smaller and less-complex entities

As pressure grows to address auditing standards challenges to the audits of smaller and less-complex entities, ACCA’s (the Association of Chartered Certified Accountants) Thinking Small First report reveals alternative ways to tackle the issue, without compromising on audit rigour.

It comes as the International Auditing and Assurance Standards Board (IAASB) is set to consult on its strategy from 2020 to 2023.

There is growing concern that auditing standards can be difficult to apply to audits of smaller and less-complex entities. Suggested reforms currently on the table include exempting smaller companies from audit, or creating a separate set of auditing standards for those audits.

ACCA proposes that auditing standards should be written using simpler language and a simpler structure. A common complaint about auditing standards is their tendency to scale down, rather than scale up: standards set requirements as if the user is an auditor of a larger entity, with the expectation that SME auditors will do less.

Andrew Gambier, head of audit and assurance at ACCA, believes a better approach would be to explain what every auditor must do, and then elaborate the requirements as the size and complexity of the audited entity increases.

He said: ‘We have one set of auditing standards for audits of all sizes. However, the challenges in applying International Standards on Auditing to audits of smaller and less-complex entities have fuelled calls for change, including a different set of auditing standards for those entities. We propose that writing auditing standards in simpler language with a simpler structure is a better solution to this very real problem.

‘Furthermore we believe simpler language and simpler structure would benefit all auditors. Auditing standards could be more easily understood, with auditors able to identify more quickly the requirements that apply to their specific situation.

‘It would also be of benefit to the audit regulators and for the general public in terms of their understanding of audit.’

The IAASB began the Clarity Project back in 2004, in response to previous concerns about the complexity of their auditing standards. Subsequent reformatting and redrafting for the standards concluded in 2009. Mr Gambier believes that the Clarity Project proves that writing standards more simply is possible, and that IAASB can once again simplify the phrasing of auditing standards.

He said: ‘An important factor in audit quality is that the public need to have confidence that standards are being maintained. The public want audit to work, and work well.

‘ACCA’s position is that it is preferable to hold a unitary approach to audit, while ensuring the rigour of audit is sustained.’

Closing the Expectation Gap in Audit, ACCA’s recently published survey of 1,000 members of the UK general public, reveals auditors are expected to play a crucial role in company safeguarding. Furthermore, 41 percent of those surveyed believe that auditors should always detect and report any fraud.

However, only a quarter of respondents were able to accurately identify what an auditor does – give an opinion on whether the financial statements of a company give a true and fair view and do not include material misstatements due to fraud or error.

The survey also revealed that 48 percent of the UK public believe it is auditors who are responsible for avoiding company failures, 41 percent expect auditors to always detect and report any fraud 65 percent believe audit should evolve to prevent company failures.


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About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants, offering business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

ACCA supports its 208,000 members and 503,000 students in 179 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. ACCA works through a network of 104 offices and centres and more than 7,300 Approved Employers worldwide, who provide high standards of employee learning and development. Through its public interest remit, ACCA promotes appropriate regulation of accounting and conducts relevant research to ensure accountancy continues to grow in reputation and influence.

ACCA has introduced major innovations to its flagship qualification to ensure its members and future members continue to be the most valued, up to date and sought-after accountancy professionals globally.

Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. More information is here: www.accaglobal.com

"An important factor in audit quality is that the public need to have confidence that standards are being maintained. The public want audit to work, and work well"

Andrew Gambier - head of audit and assurance, ACCA