In a letter to International Auditing and Assurance Standards Board (IAASB) Chair Tom Seidenstein, ICAEW has come out strongly in support of the development of a separate audit standard for less complex entities (LCEs) that it believes should help many smaller audits.
The IAASB Board meets on 16 June to discuss the issue following the release of a discussion paper last year, and ICAEW sees the negotiations as critical for the future success of the body. With the world still reeling from the effects of the coronavirus pandemic, ICAEW has also emphasised the potential contribution of a much-overdue standard for LCE audits could make to rebuilding the global economy after the crisis.
Amid wider demands for more stringent audits, IAASB is continuing its work to reform a number of International Standards in Auditing (ISAs). However, for several years ISAs have come under fire from some within both business and the accountancy profession for their length, complexity and lack of flexibility. Recently issued new ISAs have been longer than those they replace and despite efforts to make them ‘scalable’, some practitioners have voiced concerns that they may be more complex to apply, particularly for smaller audits.
ICAEW has previously raised the issue of the lack of scalability of auditing standards with IAASB. To help address this, its latest correspondence strongly supports the development of a separate standard for less complex entities and calls for such a move to happen as quickly as possible. It argues that a separate standard, far from weakening the ISA brand as some may fear, will strengthen it and consolidate the IAASB's position as the global standard setter.
In a response to an IAASB consultation on this subject last year, ICAEW said that its preferred option was for a comprehensive rewrite of ISAs, starting from simple universal principles applicable to all audits. But recognising this would take time, it called for a separate standard for LCEs, seeing this as a practical solution, achievable in a shorter timeframe.
In an article published in October last year, former ICAEW President Fiona Wilkson stated that she believed the holistic nature of LCE audits has been eroded by requirements that are more appropriate for larger organisations.
“We are also concerned that, unless the IAASB listens to the views and acts quickly and decisively, it risks losing control of standard-setting for LCE audits to more responsive governments, regulators and professional bodies,” said Wilkinson.
ICAEW has also raised concerns about the timetable for the project, which currently suggests that it will wrap up by mid-2023. While ICAEW acknowledges the need for caution, further clarity and outreach, it argues that the IAASB cannot afford this degree of caution. While recognising the challenges involved, and the importance of due process, ICAEW sees no compelling reason why finalisation of a standard could not be scheduled for mid/late 2022.