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Exposure Draft: New standard on auditing for audits of financial statements of less complex entities Smaller, less complex entities (“LCEs”) play a key role in the world’s economy and form a large portion of companies audited worldwide. Given auditors apply the same international standards on auditing (“ISAs”) when carrying out audits on entities of all complexities and sizes, the introduction of a standalone standard for the audits of less complex entities was drafted. The IAASB approved the exposure draft for this standard in June 2021. Such standard will contribute to the reduction in inconsistencies within the quality of audits and will minimise potential confusion for users. The focus of this standard addresses the complexity of audits, rather than their size, with less complex entities falling within the criteria for application. The proposed standard includes requirements for auditors to obtain sufficient appropriate audit evidence to enable the auditor to provide reasonable assurance within an audit of financial statements of an LCE. Should auditors deem specific companies to be categorised as ‘less complex’, then such audit
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can be carried out with direct reference to this proposed standard, without the need to reference the requirements or application material in the ISAs. On the contrary, should auditors need to reference other ISAs due to circumstances not dealt with in the proposed standard, then the application of such proposed standard for LCEs may in fact not be appropriate. The proposed standard does not address complex matters or circumstances and cannot be used for audits that are not audits of LCEs. Identification of the following characteristics within an audit prohibit the use of such proposed standard: • Listed entities • Entities in a jurisdiction which prohibit the use of the standard • Public interest characteristics • Group audits • Factors outside qualitative criteria and quantitative thresholds established within a jurisdiction • Prohibition from using the standard due to firm policies or procedures
