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Audits of Less Complex Entities Webinar (English)

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Listen to Prof. Roger Simnett, IAASB member and Audits of Less Complex Entities Working Group Chair, discuss the challenges and possible actions that the IAASB is exploring in its current Consultation Paper, which is open for public comment until September 12, 2019.

Listeners and stakeholders are also encouraged to share their thinking with the IAASB on less complex entities through IFAC's survey on issues relating to audits of less complex entities.

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Audits of Less Complex Entities Webinar (English)

  1. 1. Page 2 Presented by: Roger Simnett, IAASB Board Member and LCE Working Chair July 22, 2019 Audits of Less Complex Entities (LCEs) (English)
  2. 2. 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 IAASB issued Revised IAPS 1005, The Special Considerations in the Audit of Small Entities, which was withdrawn when the clarified ISAs became effective (these became the basis of the “considerations specific to smaller entities” within the ISAs).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
  3. 3. 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
  4. 4. Page 4 Poll Question
  5. 5. “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?
  6. 6. • 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.
  7. 7. Page 7 Poll Question
  8. 8. 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.
  9. 9. • 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
  10. 10. 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
  11. 11. Page 11 Poll Question
  12. 12. 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
  13. 13. Page 13 Poll Question
  14. 14. 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
  15. 15. 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
  16. 16. We would like to hear from you! (either responding to the broader Discussion Paper or the online survey) Page 16
  17. 17. www.iaasb.org For copyright, trademark, and permissions information, please go to permissions or contact permissions@ifac.org. Page 17

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