Page 2
Presented by:
Roger Simnett, IAASB Board Member
and LCE Working Chair
July 22, 2019
Audits of Less
Complex Entities
(LCEs)
(English)

Page 2
The IAASB’s Journey
IAASB undertook a post-
implementation review of the clarified
ISAs in 2011‒2013.
IAASB discussed a proposal to develop a
Discussion Paper to obtain input on matters
related to audits of LCEs.
IAASB issued Revised IAPS 1005, The Special Considerations in the
Audit of Small Entities, which was withdrawn when the clarified ISAs
became effective (these became the basis of the “considerations
specific to smaller entities” within the ISAs).
Approval of Discussion Paper. Second
Paris Conference in May 2019.
Feedback from the Paris Conference and other
outreach discussed by IAASB in Executive
Session. IAASB agrees to formal information
gathering activities on audits of LCEs.
IAASB and others convened a
conference in Paris focused on
SME and SMP public interest
issues.
2017
2004
2009
2002 –2009
March
2018 Sept.
2018
April
2019
Clarity Project.
IAASB completed the Clarity Project
and the clarified ISAs became
effective.
2013

Page 3
The IAASB’s Discussion Paper
The IAASB has not yet decided on a future course of action and
remains open minded.
Audits of Less Complex Entities: Exploring Possible Options to
Address the Challenges in Applying the ISAs
Published on April 29, 2019
Comments due by September 12, 2019

Page 4
Poll Question

“An entity which typically possesses qualitative characteristics such as:
a. Concentration of ownership and management in a small number of individuals (often a single individual –
either a natural person or another enterprise that owns the entity provided the owner exhibits the relevant
qualitative characteristics); and
b. One or more of the following:
i. Straightforward or uncomplicated transactions;
ii. Simple record-keeping;
iii. Few lines of business and few products within business lines;
iv. Few internal controls;
v. Few levels of management with responsibility for a broad range of controls; or
vi. Few personnel, many having a wide range of duties.
These qualitative characteristics are not exhaustive, they are not exclusive to smaller entities, and
smaller entities do not necessarily display all of these characteristics.”
Page 5
What is a Less Complex Entity?

• Challenges not within the IAASB’s control or within the scope of the IAASB’s
work on audits of LCEs include:
Page 6
Challenges Related to Applying the ISAs in Audits of LCEs
Factors driving challenges that are
not within the control of the
IAASB such as:
‒ Legal and other requirements for
an audit;
‒ Commercial considerations
relating to an audit;
‒ Technology / methodology; and
‒ Education and people.
Those scoped out of
exploratory activities related
to audits of LCEs such as
‒ Engagements other than
audit;
‒ Enhanced accessibility to
the ISAs;
‒ Value of an audit; and
‒ Public expectations.

Page 7
Poll Question

Challenges Related to Applying the ISAs in Audits of LCEs (Cont.)
Page 8
• Challenges within the scope of the IAASB’s work on audits of LCEs include:
‒ 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; and
‒ ISAs noted as particularly problematic.

• Revising the ISAs
Page 9
Possible Actions to be Explored
How:
‒ Revising all of the ISAs as part
of one substantial project
‒ Revising the ISAs on a rolling
or phased basis
‒ Making targeted changes when
an ISA is being revised
By:
‒ Providing greater clarity on what
the auditor needs to do
‒ Setting out basic requirements
and then building on these for
more complex situations
‒ Enhancing scalability
considerations in the application
material

Possible Actions to be Explored (Cont.)
• Developing a separate auditing standard for audits of LCEs
Page 10
‒ Separate auditing standard based on the
existing ISAs
‒ Separate auditing standard developed
based on a different framework

Page 11
Poll Question

Possible Actions to be Explored (Cont.)
• Developing guidance for auditors of LCEs or other related actions
Page 12
‒ A comprehensive guide about how to apply the ISAs in circumstances
where the nature and circumstances of the entity being audited are less
complex
‒ An International Auditing Practice Note (IAPN) for audits of LCEs
‒ Guidance for the application of specific areas within the ISAs, or
particular ISAs specifically for challenges identified related to audits of
LCEs
‒ Focused “implementation packs” for new and revised ISAs specifically for
audits of LCEs

Page 13
Poll Question

Way Forward
• Deadline for comments is September 12,
2019(survey will stay open until then)
• The IAASB’s Working Group set up for this purpose
will analyze the responses and make
recommendation for a way forward for IAASB
discussion in early 2020
• A feedback statement will be published setting out a
summary of the respondent’s views to the Discussion
Paper and the survey
Page 14

Planned Outreach Activities
Article
Article published about the matters covered within the Discussion
Paper in IFAC’s Knowledge Gateway.
Online
Survey
Conducting an online survey targeted at stakeholders who would
not necessarily respond to the formal consultation but from whom
the IAASB would like to hear from.
Virtual
Content
Developing virtual content to introduce the Discussion Paper and
promote it further through social media engagement (e.g., this
webinar)
Page 9

We would like to
hear from you!
(either responding to
the broader Discussion
Paper or the online
survey)
Page 16

www.iaasb.org
For copyright, trademark, and permissions information, please go to permissions or contact permissions@ifac.org.
Page 17