Are auditing standards meeting the needs of auditors of SMEs?

With audit quality high on the agenda for the profession, standard-setters are now paying close attention to improvements required to the existing one-size-fits-all standards approach for SME audits.

While global standard-setters work to strengthen standards in response to concerns about audit quality, commonly raised questions are: Will standards remain fit for purpose for audits of small and medium-sized entities (SMEs)? Many auditors find auditing standards are difficult to apply to the audits of SMEs. Is relief in sight?

A fundamental premise of auditing standards is that “an audit is an audit” — one set of auditing standards can apply to audits of all sizes of entities. But more are beginning to question whether this still holds true in today’s environment. In fact, there was passionate debate about this very topic at a national standard-setters meeting I attended in June 2016.

Globally, too, The International Auditing and Assurance Standards Board (IAASB) is increasing its focus on the scalability of its standards. At its global working conference in January 2017 for small and medium-sized practitioners (SMPs), a number of topics specific to scalability were explored, including:

  • understanding why some countries have designed different attest and non-attest standards to respond to the needs of SMEs
  • what the IAASB can do to better address the needs of SMEs
  • understanding the challenges facing SMPs in the audit of SMEs in different jurisdictions
  • how tools and resources used in different countries assist with implementation of the International Standards on Auditing (ISA)
  • how the IAASB might develop a process to better address scalability in its standard-setting
  • how to better engage SMPs in standard-setting at national, regional and global levels

SME audit developments in Canada

Here in Canada, scalability is also a key element of the Auditing and Assurance Standards Board (AASB)’s current strategic plan. The AASB is placing an “increased emphasis on identifying and responding to scalability issues arising from new and revised standards. This will include a plan to identify such scalability issues and consider how standard-setters in other jurisdictions are identifying and addressing these issues.”

The AASB is closely monitoring the IAASB’s work as part of its own activities to support audits of SMEs in Canada. In fact, AASB staff recently held two extremely well-attended roundtables with SMPs that explored many of the same topics being discussed at the IAASB conference. The roundtables were used to inform Canadian attendees at the IAASB conference about where SMPs here stand on the issues. These views are also a great initial step in informing the AASB on scalability challenges of standards. The AASB may be able to leverage from outcomes of the IAASB conference when considering key AASB actions to take during its strategic planning period.

SMPs must be part of the solution

While audits of public companies are of critical importance, it is my view that it is also important to maintain and enhance a thriving SMP audit profession. We need to better understand what the barriers are to effective and efficient audits of SMEs and how these can be addressed. I believe that recent developments from the IAASB and the AASB are a positive step forward.

But having input from SMPs at the frontline of SME audits is key. The AASB will continue to encourage SMPs to be involved throughout the standard-setting process and share with the AASB the challenges they face as they apply new and revised auditing standards. This is the best way the AASB can make sure that Canadian auditing standards remain fit for purpose in today’s environment.

Keep the conversation going

Do you agree that this is a timely development? How do you think standards can best reflect scalability challenges while promoting high audit quality?

Post a comment below; or email me directly.

Conversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada