Comments of the AFAANZ auditing and assurance standards committee on proposed international standard on auditing ISA for LCE

Abstract

| 4221 3. We believe that the authority may lead to confusion as to the applicability of the standard in that it will likely contribute to a disconnect between what is perceived to be a less complex entity and entities scoped into the standard. We recommend that the IAASB consider placing less emphasis on global prohibitions and place more emphasis on qualitative characteristics and jurisdictional discretion. (Question 3b) 4. We do not believe that the authority itself informs audit report users of the scope of the proposed standard and recommend that this be addressed by other means (e.g., education). (Question 3d) 5. We believe that the role of legislative and regulative authorities is appropriate. (Question 3e) 6. We do not agree with the use of specific prohibitions and believe that greater emphasis should be placed on jurisdictional discretion, and a greater focus be placed on principlesbased qualitative criteria. (Question 4a) 7. We broadly agree with the qualitative characteristics specified, but recommend, following comments in response to other questions, that the criteria be expanded to include circumstances for which the auditor needs to refer to the full suite of standards and the need to use a component auditor. (Question 4b) 8. We suggest that the approach employed in developing the ED-ISA for LCE is problematic in that it is based on the material contained in the extant suite of standards. This approach gives rise to the potential for key issues not included in the extant suite of standards, but critical to the achievement of reasonable assurance in an audit of less complex entities, being omitted from the standalone standard. (Question 7a) 9. We believe that the material on professional scepticism, relevant ethical requirements and quality management is incomplete and does not fully reflect the unique circumstances in which an audit of a less complex entity is undertaken. (Question 7c) 10. We believe that Parts 1, 3 and 6 of ED-ISA for LCE can be improved. We also believe that ISA610 (Using the work of an Internal Auditor) should not be excluded from the standard. (Question 9) 11. We broadly agree with the approach taken with regard to auditor reporting in that specific reference is made to the auditing standard with which the auditor's opinion is formed. We caution, however, that an unintended consequence may be that users incorrectly infer meaning from the use of the standalone standard and may perceive that a lower level of assurance is provided. We suggest that a broad education program would be necessary to address this potential unintended consequence. (Question 10a) 12. We agree with the approach to include a specified format and content of an Auditor's Report as a requirement. (Question 10b) 13. We do not believe that ED-ISA for LCE in its current form will meet the needs of stakeholders. We do not, however, discount the possibility of a revised standalone standard achieving the goal of meeting current challenges associated with audits of less complex entities. (Question 17b) 14. We bel...

An analysis of comment letters on a new, stand-alone standard for audits of less complex entities’ financial statements

“…Inviting relevant interest groups to write comment letters is an important way to enable voices to be heard on accounting standards that can have a large impact (Hansen, 2011). It has been suggested that the ISA for LCEs can have a significant impact because the contribution of small- and medium-sized entities to local, regional, national and global economies, and society more broadly, cannot be underestimated (Coram et al. , 2022).…”

“…Inviting relevant interest groups to write comment letters is an important way to enable voices to be heard on accounting standards that can have a large impact (Hansen, 2011). It has been suggested that the ISA for LCEs can have a significant impact because the contribution of small-and medium-sized entities to local, regional, national and global economies, and society more broadly, cannot be underestimated (Coram et al, 2022). Larson and Herz (2013) suggested that asking for comment letters from interest groups promotes excellence, neutrality, the identification of unintended consequences and, ultimately, broad acceptance of the legitimacy of the standard that is suggested.…”

“…However, research on the ISA for LCEs has been moderate. Coram et al. (2022) conducted a study examining the ISA for LCEs and provided evidence-based comments on the proposed standard.…”

“…However, research on the ISA for LCEs has been moderate. Coram et al (2022) conducted a study examining the ISA for LCEs and provided evidence-based comments on the proposed standard. Van Nieuw Amerongen et al (2023) conscientiously summarized stakeholder views during roundtables on the 2021 IAASB's ISA for LCEs project, and their results revealed considerable support regarding the need for an international LCE standard.…”

An examination of comment letters on suggested Part 10: audits of groups' financial statements in the proposed ISA for less complex entities

“…However, a very limited number of studies have examined the ISA for LCEs. Coram et al (2022) provided a technical note that contained comments from the Auditing and Assurance Standards Committee of the Accounting and Finance Association of Australia and New Zealand (AFAANZ) concerning the proposed ISA for LCEs. To summarize, their study revealed that a stand-alone standard has the potential to contribute to achieving the goal of improving confidence in LCEs' financial reports, and they clearly supported the IAASB's continuance with this project.…”