Call to ‘think small’ on audit standards

Standards setters should ensure auditing standards have a simpler language and structure in order to address the challenges of auditing smaller and less-complex entities, rather than the alternative of adopting a different approach, ACCA has claimed

The association’s comments come ahead of a meeting next week of the International Auditing and Assurance Standards Board (IAASB) where it is set to finalise a consultation process for its 2020-2023 strategy, scheduled for publication in early 2019.

ACCA says 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.

Instead, it is proposing 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, argued for an approach which explains what every auditor must do, and then elaborates 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 ISAs 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 its 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. 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.’

The ACCA report, Thinking small first: Towards better auditing standards for the audits of less complex entities is here

Report by Pat Sweet

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