IFAC SMP-SME Activities & Audits of

Less Complex Entities

Tapani Vuopala Finland

June 14, 2019

Tilintarkastuksen ja arvioinnin

symposium 2019

Tampere University

Page 2

• About IFAC and the SMP Committee

• 2018 SMP-SME Activities

• 2019 Priorities

• IAASB Discussion Paper – Audits of Less Complex

Entities

• Global Knowledge Gateway

Agenda

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What is IFAC?

• Founded 1977

– 175+ members, associates

– 130 jurisdictions

– Nearly 3 million accountants

45%

45%

8%

2%

Public practice

Business

Government

Academia/education

Representing accountants in:

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IFAC SMP Committee—Overview

• To represent interests of SMPs

• Comprised of 18 members and Technical Advisers

• Three main areas of focus:

– Regular input to international standards, policy and regulation

– Develop and share tools, guidance, standard support

– Promote the visibility and recognition of SMPs & SMEs

• Work Plan and Activities in line with the IFAC Strategic

Plan 2019-20 Build Trust. Inspire Confidence

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• Providing high-quality input from an SMP/SME

perspective

– Over 10+ formal comment letters

– Representatives on IAASB Working Groups and Task Forces

– Conference calls and Quality Management webinar

• SSB sessions at every SMPC meeting

Input to SSBs (IAASB & IESBA)

Contributing to IFAC’s Success I

• Dynamic approach to specific issues

– E.g. Panel Discussion on Professional Skepticism

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• Guide to Practice Management for SMPs 4th

Edition

– New Chapter on Leveraging Technology

• Guide to Using ISAs in the Audits of SMEs 4th Edition

– Auditor Reporting, Disclosures, Other Info, Work

of Internal Auditors

• 20+ Gateway articles and videos

– Practice Transformation - Interactive break out

sessions

–

Tools & Resources

Contributing to IFAC’s Success II

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• 2018 Global SMP Survey

– 6,258 responses from 150 countries

– 24 languages

• PPR & Key Stakeholder Engagement

– B20 SME Development Task Force

– Business at OECD (BIAC) SME and

Entrepreneurship Taskforce

• 30+ Outreach Events

– World Bank Virtual Conferences

Global Representation & Advocacy

Contributing to IFAC’s Success III

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• IAASB

– ISA 315 (Revised)

– Agreed-Upon Procedures (ISRS 4400) – ED Nov 2018

– Quality Management (ISQM 1, 2 & ISA 220) – EDs Feb 2019

– Strategy 2020-2023 – CP Jan 2019

– Audits of Less Complex Entities – DP April 2019

• IESBA

– Audit Fees

– Non-Assurance Services (NAS)

– Role and Mindset Expected of Professional Accountants

Priority IAASB & IESBA Projects 2019

Contributing to IFAC’s Success IV

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• Implementation support for ISA 540

(Revised), Accounting Estimates

• Update PM Guide section on

Professionalism and Ethics to reflect the

restructured IESBA Code

• Re-packaging & promoting existing material

• Topical and emerging issues discussed in

SMPC meetings e.g. Practice Transformation

Preparing a future-ready profession

Contributing to IFAC’s Success V

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• Presentations/speeches by members/staff at various seminars

and conferences

• Input to IFAC’s PPR activities

• Develop and maintain relationships with key SMP/SME

stakeholders

• Maintain and build membership/following of social media vehicles

including IFAC LinkedIn SMP Community and IFAC SMP

Committee Twitter

Speaking out as the voice for the global profession

Contributing to IFAC’s Success VI

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Audits of Less Complex Entities DP I

• IAASB Discussion Paper: Deadline for

comments Sep 12

• Challenges identified to date & possible

actions that could be undertaken

• Develop recommendations for IAASB

consideration about appropriate way

forward

• Feedback statement then IAASB

deliberate about how to best move forward

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Audits of Less Complex Entities DP II

• Scope– Undertake information gathering to better understand

issues

– Obtain stakeholder views about possible IAASB actions

• Related outreach– Roundtables (including second Paris conference May

16-17 2019)

– Targeted efforts to hear from SMPs / SMEs

Page 24

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IAASB Journey

2013

2014

2017

2017 &

2018

ISA Implementation Monitoring highlighted challenges of

applying standards for SME’s (2012 & 2013)

Recognition in Strategy for 2015–2019 of

importance of meeting needs of SME’s

Paris Conference

focused on

understanding needs of

SME’s / SMPs

Working Group /

IAASB discussions to

consider issues and

way forward (2017–

2018)

Proposal to develop Discussion Paper on

Audits of Less Complex Entities (Sep 2018)

2018

April

2019

Discussion Paper on Audits

of Less Complex Entities and

Related Outreach

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Jurisdictional or regional initiatives

• 2015 Nordic Standard for Audits of Small Entities consultation

– Responses echoed a call for action but mixed messages on the action

– In order to be successful an international response required

• 2018 Sri Lanka issued ‘The Sri Lanka Auditing Standard for the Audits of Non-Specified Business Enterprises’

• 2019 Belgium published a statutory standard for auditing SMEs

• 2019 France consideration being given to a new ‘pronouncement’ for audits that would fall below the statutory threshold i.e. voluntary

= Pressure increasing for a global solution

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What is a Less Complex Entity?

• IAASB focus on complexity of the entity rather than size

• Currently used the definition of a “smaller entity” which sets out many of the qualitative characteristics that could be attributable to an LCE

• Further consideration will be given to how to describe LCEs – its application will depend on the outputs from the DP

• Individual jurisdictions may need to determine how the definition would be applied in their jurisdiction

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Factors driving challenges not in the IAASB scope or control

• Legal and other requirements for an audit, including audit thresholds

• Commercial considerations relating to an audit

• Access to technology tools/ methodologies

• Education and people

• Engagements other than audit (e.g. review, assurance and related service standards)

• Value of an audit

• The expectation gap

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SMPs: International Standard Implementation Support

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Challenges within the IAASB Scope

• Language and Basic Approach to the Standards• Length of the Standards• Documentation• Lack of clarity as to what needs to be done or why• Not enough guidance within/ outside of the ISAs• Specific ISAs and particular requirements

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Possible Actions to be Explored I

1. Revising the ISAs to make the auditors work effort clearer

• Greater focus on more clearly setting out what the auditor needs to do i.e. focusing on the way the requirements have been articulated using clearer and understandable language

• Setting out the basic audit requirements for all audits then expanding as needed to address more complex circumstances

• Application material to feature more scalability & proportionality considerations

How? Options– Revising all of the ISAs as part of one substantial project

– Revising the ISAs on a rolling or phased basis

– Making targeted changes to certain ISAs

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Possible Actions to be Explored II

2. Developing a separate auditing standard for less complex entities• A separate standard based on the existing ISAs

– Level of assurance for the audit opinion should be the same (i.e. reasonable assurance)

– Retain a similar robustness as the ISAs & mirror risk-based approach but follow work flow of an audit

– Retain principles-based requirements allow for prof. judgement

– Based on ISAs but may not have a complete set of app material

• Developing a standard based on a different framework

– Same assurance but not risk-based e.g. more substantive

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Possible Actions to be Explored III

• IFAC Policy Position – support for single set of auditing standards for audits of SMEs –one consistent level of assurance associated with the word “audit” is important

• Risk of confusing the public, concern around the rigor of an LCE audit and creation of a two-tier profession

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Possible Actions to be Explored IV

3. Developing guidance for auditors of less complex entities or other related actions

– An enhanced comprehensive guide on applying ISAs for audits of less complex entities

– An International Auditing Practice Note (IAPN) for Audits of Less Complex Entities

– Guidance for the application of specific areas within the ISAs or specific ISAs

– Focused “implementation packs” for new and revised ISAs

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Questions

• Is the LCE description appropriate? Are there other characteristics that should

be included?

• What percentage of audit clients would be considered as less complex

entities?

• What are the top 3 most significant matters impacting the audit environment for

less complex entities?

• What are the 3 most significant issues that makes the ISAs a challenge to

apply to audits of less complex entities?

• What are the specific ISAs and the particular requirements that are difficult to

apply?

• Which option should be prioritized by the IAASB and why?

• What other possible actions could be explored?

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IFAC Global Knowledge Gateway

• Original thought leadership, curated news

& resources from around the world

• Example Gateway articles & videos

include:

– Blockchain Will Transform Audit-Get Ready

Now

– Artificial Intelligence’s Impact on Business

– Navigating Ethics in a Digital Age

– Accountants, Skills & Cybersecurity

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• IFAC SMP Committee: www.ifac.org/SMP

• Follow us on Twitter: IFAC_SMP

• IFAC Global SMP Survey www.ifac.org/smp

• Join us on LinkedIn: IFAC SMP Community

• Global Knowledge Gateway www.ifac.org/Gateway

IFAC Resources (and Communities)