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Smaller entity audit

International Standards on Auditing for smaller and less complex entities are rising up the agenda. Katharine Bagshaw explores this development.

Smaller audits remain challenging despite,and also because of, audit exemption. Auditing standards, unlike accounting standards, need to accommodate the audits of the largest and most complex multinationals as well as the smallest entities.

The length and complexity of auditing standards and the cost of smaller audits are both factors that have affected decisions regarding audit exemption levels and, to a lesser extent, the development of non-audit assurance services for small- and medium-sized entities (SMEs). A few jurisdictions have considered the imposition of audit requirements for the first time in recent years. Others, notably in Scandinavia, are considering the reintroduction of requirements for the audit of smaller entities in the face of a decline in the tax take after exemption limits were increased.

But the overall trend is towards audit exemption for smaller entities. While the number of non-statutory audits performed generally increases as exemption limits are raised, increasing audit exemption levels over the last 30 years has led to the performance of fewer smaller audits and a decline in the number of registered auditors, certainly in the UK. Nevertheless, smaller audits as a category remains – in absolute numbers – by far the largest conducted globally under International Standards on Auditing (ISA).

The challenges of making those ISAs work efficiently and effectively for smaller audits are finally being acknowledged by the International Auditing and Assurance Standards Board (IAASB).

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