Firms may want to consider the proposed FRC ‘Guidance for audits of smaller and/or less complex entities’ and have their say on the consultation.
The UK’s Financial Reporting Council (FRC) has developed a new Practice Note (PN) to help practitioners take advantage of opportunities for scalability in the International Standards on Auditing (ISAs) (UK) and is consulting on this until 17 October 2025.
ICAEW has formed a working group to consider this.
The FRC has published proposed ‘Guidance for audits of smaller and/or less complex entities’ as a 65-page PN exposure draft (briefly outlined below) with a 10-page invitation to comment. There is also a recorded webinar from the FRC on what it is trying to achieve with the new PN.
The PN’s publication coincided with emerging findings from an SME audit market study. They are part of a wider FRC campaign to help small and medium-sized entities access audit services, capital for growth and to reduce reporting burdens where possible.
Feedback gathered from the market study informed the proposed guidance. The new PN also builds on the FRC’s ‘Guidance on Smaller Entity Documentation’ (PN 26), withdrawn in 2018; although the new PN considers ISA UK application challenges that go beyond documentation.
Questions on the proposed guidance
There are four questions in the consultation.
- Do you support the development of the PN, and do you believe it will help give practitioners the confidence to apply the ISAs (UK) in a scalable and proportionate manner for the audits of smaller and/or less complex entities?
- Do you believe the PN addresses the issues arising in the SME market sector when it comes to audit?
- Are there other ISAs (UK) or specific requirements within ISAs (UK) that you believe this PN should provide guidance in their application to the audit of small and/or less complex entities?
- Are the examples included within the PN and the Appendix helpful or could they be enhanced? Are there other scenarios that we could include in the final version of the PN?
Practical pointers in the proposed guidance
The PN has been written for all statutory auditors in the UK but smaller firms, in particular, may find it useful. It does not provide comprehensive guidance, nor does it contain commentary on all the requirements included in the ISAs (UK).
Guidance in the PN focuses on areas where feedback to the FRC on implementation of ISAs (UK) has identified that, in an audit of a smaller and/or less complex entity, further guidance on scalability and proportionality could be helpful.
The Practice Note has been written for all statutory auditors in the UK but smaller firms, in particular, may find it useful
It begins with considerations on some thorny areas, such as qualitative indicators of complexity and ethical provisions for audits of small entities, following the typical flow of an audit engagement.
Sections on planning, risk assessment, responses to assessed risks, group audit considerations, plus documentation, include scenario-based guidance on matters such as assessing risks in accounting estimates, determining materiality, plus going concern.
An appendix featuring practical examples and excerpts from working papers for a fictitious company audit, illustrates principles developed in the PN to support the scalable application of the auditing standards to smaller and/or less complex entities.
What about the ISA for LCE?
ICAEW has been a longstanding supporter of the Auditing Standard for Less Complex Entities (ISA for LCE) issued by the International Auditing and Assurance Standards Board (IAASB). It seems likely that ICAEW’s response will make clear that the Guidance for audits of smaller and/or less complex entities, as proposed by the FRC, is no substitute for a proper discussion of the ISA for LCE in the UK.
Have your say
Send responses to AAT@frc.org.uk marked for the attention of James Ferris, Director of UK Auditing and Assurance Standards, to arrive by 17 October 2025.
