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IFAC SMP-SME Activities & Audits of
Less Complex Entities
Tapani Vuopala Finland
June 14, 2019
Tilintarkastuksen ja arvioinnin
symposium 2019
Tampere University
Page 2
• About IFAC and the SMP Committee
• 2018 SMP-SME Activities
• 2019 Priorities
• IAASB Discussion Paper – Audits of Less Complex
Entities
• Global Knowledge Gateway
Agenda
Page 3
What is IFAC?
• Founded 1977
– 175+ members, associates
– 130 jurisdictions
– Nearly 3 million accountants
45%
45%
8%
2%
Public practice
Business
Government
Academia/education
Representing accountants in:
Page 4
IFAC SMP Committee—Overview
• To represent interests of SMPs
• Comprised of 18 members and Technical Advisers
• Three main areas of focus:
– Regular input to international standards, policy and regulation
– Develop and share tools, guidance, standard support
– Promote the visibility and recognition of SMPs & SMEs
• Work Plan and Activities in line with the IFAC Strategic
Plan 2019-20 Build Trust. Inspire Confidence
Page 5
• Providing high-quality input from an SMP/SME
perspective
– Over 10+ formal comment letters
– Representatives on IAASB Working Groups and Task Forces
– Conference calls and Quality Management webinar
• SSB sessions at every SMPC meeting
Input to SSBs (IAASB & IESBA)
Contributing to IFAC’s Success I
• Dynamic approach to specific issues
– E.g. Panel Discussion on Professional Skepticism
Page 6
• Guide to Practice Management for SMPs 4th
Edition
– New Chapter on Leveraging Technology
• Guide to Using ISAs in the Audits of SMEs 4th Edition
– Auditor Reporting, Disclosures, Other Info, Work
of Internal Auditors
• 20+ Gateway articles and videos
– Practice Transformation - Interactive break out
sessions
–
Tools & Resources
Contributing to IFAC’s Success II
Page 7
• 2018 Global SMP Survey
– 6,258 responses from 150 countries
– 24 languages
• PPR & Key Stakeholder Engagement
– B20 SME Development Task Force
– Business at OECD (BIAC) SME and
Entrepreneurship Taskforce
• 30+ Outreach Events
– World Bank Virtual Conferences
Global Representation & Advocacy
Contributing to IFAC’s Success III
Page 8
• IAASB
– ISA 315 (Revised)
– Agreed-Upon Procedures (ISRS 4400) – ED Nov 2018
– Quality Management (ISQM 1, 2 & ISA 220) – EDs Feb 2019
– Strategy 2020-2023 – CP Jan 2019
– Audits of Less Complex Entities – DP April 2019
• IESBA
– Audit Fees
– Non-Assurance Services (NAS)
– Role and Mindset Expected of Professional Accountants
Priority IAASB & IESBA Projects 2019
Contributing to IFAC’s Success IV
Page 9
• Implementation support for ISA 540
(Revised), Accounting Estimates
• Update PM Guide section on
Professionalism and Ethics to reflect the
restructured IESBA Code
• Re-packaging & promoting existing material
• Topical and emerging issues discussed in
SMPC meetings e.g. Practice Transformation
Preparing a future-ready profession
Contributing to IFAC’s Success V
Page 10
• Presentations/speeches by members/staff at various seminars
and conferences
• Input to IFAC’s PPR activities
• Develop and maintain relationships with key SMP/SME
stakeholders
• Maintain and build membership/following of social media vehicles
including IFAC LinkedIn SMP Community and IFAC SMP
Committee Twitter
Speaking out as the voice for the global profession
Contributing to IFAC’s Success VI
Page 11
Audits of Less Complex Entities DP I
• IAASB Discussion Paper: Deadline for
comments Sep 12
• Challenges identified to date & possible
actions that could be undertaken
• Develop recommendations for IAASB
consideration about appropriate way
forward
• Feedback statement then IAASB
deliberate about how to best move forward
Page 12
Audits of Less Complex Entities DP II
• Scope– Undertake information gathering to better understand
issues
– Obtain stakeholder views about possible IAASB actions
• Related outreach– Roundtables (including second Paris conference May
16-17 2019)
– Targeted efforts to hear from SMPs / SMEs
Page 24
Page 13
IAASB Journey
2013
2014
2017
2017 &
2018
ISA Implementation Monitoring highlighted challenges of
applying standards for SME’s (2012 & 2013)
Recognition in Strategy for 2015–2019 of
importance of meeting needs of SME’s
Paris Conference
focused on
understanding needs of
SME’s / SMPs
Working Group /
IAASB discussions to
consider issues and
way forward (2017–
2018)
Proposal to develop Discussion Paper on
Audits of Less Complex Entities (Sep 2018)
2018
April
2019
Discussion Paper on Audits
of Less Complex Entities and
Related Outreach
Page 23
Page 14
Jurisdictional or regional initiatives
• 2015 Nordic Standard for Audits of Small Entities consultation
– Responses echoed a call for action but mixed messages on the action
– In order to be successful an international response required
• 2018 Sri Lanka issued ‘The Sri Lanka Auditing Standard for the Audits of Non-Specified Business Enterprises’
• 2019 Belgium published a statutory standard for auditing SMEs
• 2019 France consideration being given to a new ‘pronouncement’ for audits that would fall below the statutory threshold i.e. voluntary
= Pressure increasing for a global solution
Page 24
Page 15
What is a Less Complex Entity?
• IAASB focus on complexity of the entity rather than size
• Currently used the definition of a “smaller entity” which sets out many of the qualitative characteristics that could be attributable to an LCE
• Further consideration will be given to how to describe LCEs – its application will depend on the outputs from the DP
• Individual jurisdictions may need to determine how the definition would be applied in their jurisdiction
Page 16
Factors driving challenges not in the IAASB scope or control
• Legal and other requirements for an audit, including audit thresholds
• Commercial considerations relating to an audit
• Access to technology tools/ methodologies
• Education and people
• Engagements other than audit (e.g. review, assurance and related service standards)
• Value of an audit
• The expectation gap
Page 17
SMPs: International Standard Implementation Support
Page 18
Challenges within the IAASB Scope
• Language and Basic Approach to the Standards• Length of the Standards• Documentation• Lack of clarity as to what needs to be done or why• Not enough guidance within/ outside of the ISAs• Specific ISAs and particular requirements
Page 19
Possible Actions to be Explored I
1. Revising the ISAs to make the auditors work effort clearer
• Greater focus on more clearly setting out what the auditor needs to do i.e. focusing on the way the requirements have been articulated using clearer and understandable language
• Setting out the basic audit requirements for all audits then expanding as needed to address more complex circumstances
• Application material to feature more scalability & proportionality considerations
How? Options– Revising all of the ISAs as part of one substantial project
– Revising the ISAs on a rolling or phased basis
– Making targeted changes to certain ISAs
Page 20
Possible Actions to be Explored II
2. Developing a separate auditing standard for less complex entities• A separate standard based on the existing ISAs
– Level of assurance for the audit opinion should be the same (i.e. reasonable assurance)
– Retain a similar robustness as the ISAs & mirror risk-based approach but follow work flow of an audit
– Retain principles-based requirements allow for prof. judgement
– Based on ISAs but may not have a complete set of app material
• Developing a standard based on a different framework
– Same assurance but not risk-based e.g. more substantive
Page 21
Possible Actions to be Explored III
• IFAC Policy Position – support for single set of auditing standards for audits of SMEs –one consistent level of assurance associated with the word “audit” is important
• Risk of confusing the public, concern around the rigor of an LCE audit and creation of a two-tier profession
Page 22
Possible Actions to be Explored IV
3. Developing guidance for auditors of less complex entities or other related actions
– An enhanced comprehensive guide on applying ISAs for audits of less complex entities
– An International Auditing Practice Note (IAPN) for Audits of Less Complex Entities
– Guidance for the application of specific areas within the ISAs or specific ISAs
– Focused “implementation packs” for new and revised ISAs
Page 23
Questions
• Is the LCE description appropriate? Are there other characteristics that should
be included?
• What percentage of audit clients would be considered as less complex
entities?
• What are the top 3 most significant matters impacting the audit environment for
less complex entities?
• What are the 3 most significant issues that makes the ISAs a challenge to
apply to audits of less complex entities?
• What are the specific ISAs and the particular requirements that are difficult to
apply?
• Which option should be prioritized by the IAASB and why?
• What other possible actions could be explored?
Page 24
IFAC Global Knowledge Gateway
• Original thought leadership, curated news
& resources from around the world
• Example Gateway articles & videos
include:
– Blockchain Will Transform Audit-Get Ready
Now
– Artificial Intelligence’s Impact on Business
– Navigating Ethics in a Digital Age
– Accountants, Skills & Cybersecurity
Page 25
• IFAC SMP Committee: www.ifac.org/SMP
• Follow us on Twitter: IFAC_SMP
• IFAC Global SMP Survey www.ifac.org/smp
• Join us on LinkedIn: IFAC SMP Community
• Global Knowledge Gateway www.ifac.org/Gateway
IFAC Resources (and Communities)
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