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In June 2019 the Auditing and Assurance Standards Board (AASB) issued a Discussion Paper (DP) to encourage Canadian stakeholders to respond to the International Auditing and Assurance Standards Board’s (IAASB) DP
Audits of Less Complex Entities: Exploring Possible Options to Address the Challenges in Applying the ISAs (hereafter referred to as the IAASB’s DP).
Practitioners in Canada and around the world have identified scalability challenges when applying Canadian Auditing Standards (CAS) and International Standards on Auditing (ISA) to audits of less complex entities (LCEs).
The IAASB is currently working on a project to better understand the challenges faced by practitioners in applying the ISAs to audits of LCEs and to explore possible actions to take in responding to the challenges identified. The AASB also has committed in its 2016-2021 Strategic Plan to identify and address these challenged faced by practitioners. It has been monitoring the IAASB’s activities in this area and providing continuous feedback on these activities.
In considering how to define an LCE in the DP, the IAASB used the current definition of a “smaller entity” in the ISAs as its starting point. This definition sets out many of the qualitative characteristics that could be attributable to an LCE:
“An entity which typically possesses qualitative characteristics such as:
(i) Straightforward or uncomplicated transactions
(ii) Simple record-keeping
(iii) Few lines of business and few products within business lines
(iv) Few internal controls
(v) Few levels of management with responsibility for a broad range of controls, or
(vi) Few personnel, many having a wide range of duties.
These qualitative characteristics are not exhaustive, they are not exclusive to smaller entities, and smaller entities do not necessarily display all of these characteristics.”
The IAAS will continue to evaluate the appropriateness of these characteristics as the IAASB moves forward in its work in this area.
Possible Actions to be Explored
The IAASB identified several possible action steps to address the issues that have been identified. The possible solutions identified include:
As part of the IAASB’s DP, feedback has been requested on the following areas:
Comments to the AASB were due on August 14th, 2019, and comments to the IAASB were due on September 12, 2019. The IAASB is currently deliberating feedback received on the DP.
For full details on the AASB’s project, click
here. For full details on the IAASB’s project, click
For more information on the financial reporting library, contact a local
MNP Assurance Professional, or
Jody MacKenzie, Director, Assurance Professional Standards.
This communication contains a general overview of the topic and is current as of May 13, 2020. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2020. All rights reserved.
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