audits of smes – scalability of isas · proportional application of isas and isqc 1 • isas –...

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Audits of SMEs – Scalability of ISAs

Florin Toma Member, IFAC Small and Medium Practices Committee 12th FCM Annual Conference Tirana, Albania November 4, 2013


IFAC SMP Quick Poll Findings

•  Keeping up with standards and regulation is biggest challenge facing SMPs

•  Pace of change was that aspect of standards and regulation that posed the greatest challenge for SMPs

•  Tax rules (then audit & assurance) were the types of standards and regulation that posed the greatest challenge for SMPs


Input to Standards (IAASB)

•  Robust and regular input on key projects –  Proportionality/scalability is key consideration

–  Comment letter on A Framework for Audit Quality CP (May)

–  Comments on ISA Implementation Monitoring project (April)

•  Response to IAASB strategy survey (April) –  Need for stable platform but…..

–  Internal controls and documentation may be insufficiently scalable

–  ISQC 1 needs to be more risk-based and proportionate

–  Need for impact analysis and post-implementation reviews


Proportional Application of ISAs and ISQC 1

•  ISAs –  Contain special considerations for smaller entity audits

–  Some ISAs only apply to larger entity audits

–  Many requirements may not be relevant to SME audits

–  IAASB staff Q&A, Applying ISAs Proportionately with the Size and Complexity of an Entity

•  ISQC 1 –  Contains special considerations for smaller practices

–  IAASB staff Q&A, Applying ISQC 1 Proportionately with the Nature and Size of a Firm


Findings from ISA Implementation Monitoring – SME Audits I

•  Clarified ISAs developed with a view to being applied to audits of all sizes

•  Concerns raised in about application of clarified ISAs to smaller audits –  Survey initiated in two parts for countries who had already initiated the

clarified ISAs (covered first and second year’s after implementation)

•  Responses received from 70 SMPs from 10 countries


Findings from ISA Implementation Monitoring – SME Audits II

•  Views on proportionality of the ISAs varied –  More than half had the view that the ISAs could satisfactorily be applied to

smaller audits without modification; others thought changes were needed to the ISAs for very small audits

Positive

•  Clarified ISAs had impacted audit work, in particular improved audit planning with more of a focus on risk

•  More awareness on the need for professional judgment •  Better documentation relating to key areas •  Efficiency realized in second year


Findings from ISA Implementation Monitoring – SME Audits III

Unfavorable

•  About half had the view that implementation challenges would have been reduced with more training and/or guidance

•  Audit engagement team could be overly focused on filling in checklists and preparing documentation

•  Some standards seen as overly excessive for smaller audits (e.g. ISA 540 (auditing fair values) – applicability in all cases?


Knowledge Sharing – Implementation

•  Building and sharing knowledge, including access to resources and tools, amongst member bodies and SMPs –  Implementing standards (incl. ISAs, ISQC 1)

–  Insight articles (e.g., efficiently auditing SMEs, review engagements)

–  Comprehensive guides on how to efficiently implement ISAs and ISQC 1 (guidance, case studies, checklists etc.)

–  Guide to Review Engagements (Dec. 2013)

–  Suite of links to free resources from member bodies


Knowledge Sharing – Implementation II

ISA Guide Volume 1 •  Fundamental concepts of a risk-

based audit in conformance with the ISAs

ISA Guide Volume 2 •  Practical guidance on performing

SME audits. Includes two illustrative case studies—one of an SME audit and one of a micro-entity audit


Knowledge Sharing – Implementation III

•  QC Guide •  Helps SMPs apply ISQC 1

proportionately and efficiently. Includes guidance, case study, two sample QC manuals and checklists

•  Reference, training, customize manuals and checklists


References – General

§  IFAC SMP Committee website: http://www.ifac.org/smp §  IFAC SMP Twitter: https://www.twitter.com/IFAC_SMP (please follow us) §  IFAC SMP eNews: https://www.ifac.org/login?register (please subscribe) §  IFAC SMP Community:

http://www.linkedin.com/groups?home=&gid=4542841&trk=anet_ug_hm (please join us) §  IFACnet http://ifacnet.com/ §  IFAC SMP Quick Poll: Mid-Year 2013:

http://www.ifac.org/publications-resources/ifac-smp-quick-poll-mid-year-2013 (please take the Nov./Dec. 2014 poll)

§  Resources and tools (all): http://www.ifac.org/about-ifac/small-and-medium-practices-committee/smp-resources-and-tools

§  IFAC Translations and Permissions: http://www.ifac.org/about-ifac/translations-permissions •  Links to implementation of ISAs resources:

https://delicious.com/#ifacsmpcommittee/Implementation,Audit •  Links to implementation of ISQC 1 resources:

https://delicious.com/#ifacsmpcommittee/Implementation,Quality%20Control


References – IAASB

•  Staff Q&A, Applying ISAs Proportionately with the Size and Complexity of an Entity: http://www.ifac.org/publications-resources/staff-questions-answers-applying-isas-proportionately-size-and-complexity-ent

•  Staff Q&A, Applying ISQC 1 Proportionately with the Nature and Size of a Firm: http://www.ifac.org/sites/default/files/publications/files/Staff%20QA%20ISQC%201%20Proportionality_FINAL.pdf

•  The Clarified ISAs—Findings from the Post-Implementation Review: http://www.ifac.org/publications-resources/clarified-isas-findings-post-implementation-review


References – Knowledge Sharing - Implementation

•  Guide to Using International Standards on Auditing in the Audits of Small- and Medium-Sized Entities (Third Edition) (incl. companion manual and slides): https://www.ifac.org/publications-resources/guide-using-international-standards-auditing-audits-small-and-medium-sized-en

•  Guide to Quality Control for Small- and Medium-Sized Practices (Third Edition) (incl. companion manual and slides): www.ifac.org/publications-resources/guide-quality-control-small-and-medium-sized-practices-third-edition-0

•  Boosting the Quality and Efficiency of Smaller Entity Audits article: https://www.ifac.org/news-events/2013-07/boosting-quality-and-efficiency-smaller-entity-audits

•  Tips for Cost-Effective ISA Application article: https://www.ifac.org/publications-resources/tips-cost-effective-isa-application

•  Tips for Cost-Effective ISQC 1 Application article: https://www.ifac.org/publications-resources/tips-cost-effective-isqc-1-application


Thank You

www.ifac.org/smp

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