The International Auditing and Assurance Standards Board (IAASB) published an International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE) in December 2023. “The finalisation of the ISA for LCE is a significant achievement for the IAASB,” says Katharine Bagshaw, Senior Manager, Auditing Standards, Audit & Assurance, ICAEW.

The new global standalone ISA has been designed specifically for less complex entities, a very large number of which will be small. 

Building on the foundations of the other ISAs, audits performed using the ISA for LCE will provide the same ‘reasonable’ level of assurance. The standard is effective for periods beginning on or after 15 December 2025, for eligible audits of financial statements.

There are various eligibility criteria set out in the standard, but the ultimate arbiter of which entities are in scope is always local audit regulators. The nature of the entity determines whether ISA for LCE can be used. It cannot, for example, be used by entities that are listed or have public interest characteristics and there are constraints on its use for group audits. 

Not in the UK, for now

Opposition from audit regulators, including the UK’s Financial Reporting Council (FRC), means that at least for now, the standard will not be adopted in some jurisdictions, including the UK. Work on the extent of likely adoption globally is now under way. Early adoption is permitted and encouraged by the IAASB.

Bagshaw says: “The finalised standard is far from perfect, but it presents an opportunity to revitalise the smaller, less complex audit market, in the public interest, to serve the many smaller businesses and other entities to which it might be applied.” 

ICAEW has consistently supported this project and will continue to engage with the FRC, other professional bodies, and other stakeholders in audit, to advance debate on UK adoption.