Dear SPA Members,
I am grateful to you for your comments on Less Complex Entities (small company) audit. I know many of you have given up audit and /or subcontracted it because of the depth of regulation. I have listened to you and a team of 3 of us visited the FRC last December. I was joined by members, Peter Hollis and Paul Clegg. To our surprise we were well received and we believe we have had a very helpful and beneficial meeting. We have been invited to return for another meeting in March. Our founder, the late Peter Mitchell, would have been really proud of all who hve contribute so far.
It must be coincidental that on 3rd February 2025 the FRC issued a “Small and medium-sized enterprises (SMEs) market study” (which can be found at Small and medium-sized enterprises market study with an invitation to comment. The paper is less than 4 pages long. Please see our “comment” below and of your comments attached. I now need your help, again, please whether or not you are an auditor past or present or ever.
Do any of you have strong links with SME trade bodies or politicians of any party or local societies so that we and you can get involved in lobbying them? This is winnable with transparency and a team effort.
This is really important for the growth of the UK economy, SMEs and the auditing profession.
My thanks to all of you who have supported our initiative from the beginning. This is a golden opportunity for the SPA and in memory of former director David Sandground who recently sadly passed away. Our sincere condolences to Carol and family. We wish you all a long and healthy life.
Kind regards,
Howard Gross BFP FCA FCCA CTA
Director
Letter to FRC
Dear FRC,
The Society of Professional Accountants Ltd. represents numerous small practitioners. Our responses to your consultation questions are as follows: –
Q1. The UK audit market is currently not functioning well. It’s been in serious decline in recent years. As explained in the attached detailed comments, which should be treated as part of this response, too many of our members have left or are contemplating leaving the SME audit market.
Q2. The main reasons for SMEs obtaining financial audits are as follows:
*To meet a statutory requirement if they are medium-size companies.
*To meet a statutory requirement if they are a small company whose parent company’s directors do not wish to guarantee its liabilities.
*To meet a statutory requirement if they are a small company whose parent company is an overseas company which would be the case with inbound foreign investment.
*To give the directors peace of mind and some legal defence before signing off the accounts. The likelihood of this is likely to increase when the Economic Crime and Corporate Transparency Act 2023 comes into full effect. Full accounts rather than abridged accounts will be required to be filed ( but not necessarily published) and may be subject to scrutiny. Also new offences will come into effect for the delivery of false, misleading, or deceptive information including a basic offence and an aggravated offence.
*To respond to situations where the articles of association or 10% or more of the shareholders by value or number require an audit.
* To fulfil the requests of companies that need an audited track record for listing purposes.
*To meet commercial agreements such as purchase agreements that require earn out calculations based on audited accounts.
*As companies’ annual accounts are the basis for corporation tax, their audit minimizes the Tax Gap which following a policy of progressive increases in monetary thresholds for audit exemption is last reported at £39.8 billion with 60% attributed by HMRC to small businesses.
*Audit is a key line of defence against tax evasion, money laundering, corporate fraud, and other forms of corporate impropriety. This should be seen as essential to the maintenance of the UK’s reputation as a good place to invest and grow a business.
* It provides an early warning mechanism to directors on inadequate systems of accounting and control, poorly compiled plans, budgets and forecasts and insufficient capital and other resources. These are necessary foundations and building blocks for business growth and a healthy economy.
Audit is therefore essential to the Government’s Growth Agenda and its success.
The main drivers therefore appear to be as follows:
* The reliability of audited accounts helps protect the shareholders.
*Audited accounts provide directors with peace of mind and a legal defence if the company’s accounts are challenged. It needs to be borne in mind that FRS 102 has increased in length from 424 pages to 484 pages and is quite demanding. Directors can’t just ‘wing it’.
*A source of assurance to different types of SME stakeholder such as owner-shareholders, investors, purchasers, providers of finance, HMRC, local communities, trading partners, creditors, employees, and the public in general. Audit effectively provides them with greater protection which is essential for a successful growth economy.
*Commercial agreements.
Q3. The challenges faced by SMEs in relation to audits are as follows:
*As too many audit firms have exited or are contemplating exiting the audit market, it is becoming more difficult for SMEs to find an auditor.
*The cost of auditing has increased because auditing standards keep getting longer, more detailed, too complex and more demanding. This is because ISAs( UK) run to more than 1,000 pages, are one-size-fits-all and are primarily designed with listed entities and financial institutions in mind. They also keep getting revised and becoming more onerous.
*Directors complain that the ISAs( UK) have become progressively more burdensome for the management and staff at the receiving end of an audit for no added benefit.
* Without audit, more SMEs will go into liquidation and more jobs will be lost. The policy of progressive increases in monetary thresholds for audit exemption means that the necessary early warning mechanism that leads to improvement of systems, budgets and plans, and levels of capital and finance has been removed. This will result in a higher likelihood of the UK economy flatlining
* More SMEs will struggle to grow and innovate as by becoming audit exempt, they will lose all the benefits of an annual independent challenge of their budgets, plans and finances. This is also anti-growth. The idea that the savings arising from a company becoming audit exempt then being spent on innovation and growth is nonsense. An SME audit fee saving is not enough to lead to meaningful growth and innovation, and it’s very likely that any such saving will be spent in less beneficial ways. In the long run, audit exemption is anti-growth recklessness.
* Another consequence of audit exemption is that systems of accounting and control will degenerate, put SMEs at greater risk of fraud , sliding into tax evasion and other impropriety. This puts the reputation of the UK as a good place to invest and grow a business into jeopardy.
* It should be borne in mind that the World Bank is actively supporting the ISA for LCE as it improves SMEs access to credit, finance, capital, and investment packages. Denying UK SMEs, the benefit of the ISA for LCE puts them at a disadvantage to overseas competitors and it is anti-growth. Instead, it’s pro-audit bureaucracy and pro-red tape as its alternative, the 158-page ISA for LCE would result in much shorter audit checklists than those we currently have with the 1,000 page plus full set of ISA( UK).
*Ultimately the directors and staff of SMEs are currently at the receiving end of unnecessarily massive audit checklists, and therefore the ISA for LCE will result in a reduction in the burdens on them.
Q4. The challenges experienced by audit firms in relation to audits are set out in the attached detailed comments, which should be treated as part of this response.
Amongst many other problems the challenges for audit firms include the following:
* The 1,000 pages plus ISAs( UK) have caused the ICAEW’s inspection teams to expect a checklist approach to meeting all their detailed requirements and onerous supporting guidance. This has been seized upon by the audit pack builders, and as a result our audit packs have grown exponentially and thereby created huge checklists which are far too lengthy, detailed, and complex, and which take far too much time to complete and review. This increases audit cost, creates excessive time pressure, reduces the time available to deliver added value, gives us serious staffing issues, creates regulatory overload, can result in dysfunctional audit outcomes and results in small firms exiting from audit markets.
* Insufficient time is available to check that the accounts are correct for tax computation purposes.
* The ISAs( UK) are grossly anti-competitive for small firms as we have less resources such as automation and artificial intelligence (AI) to deal with excessive auditing standards and compete with larger firms on a misplaced type of audit quality for SMEs whereby it is misperceived to be about producing weighty audit files to minimise inspection risk.
* ISAs make it difficult for us to compete based on price or innovation. However, we are subject to rising prices and employees’ costs.
*ISAs hinder audit innovation or lateral thinking which is how fraud is found.
*The full set of ISAs (UK) when applied to SMEs and other non-PLCs creates unnecessary time and workload pressure which takes away too much time for professional scepticism, professional judgement, challenge and adding value by way of suggestions that help businesses, scale up and survive. As the attached comments clearly show, they significantly reduce the quality of SME audits. The idea that longer, more detailed, and complex standards designed for PLCs increase SME audit quality is a myth.
*ISAs result in too much box-ticking and a fill-in-the-blank mentality which suppress proper thought.
*Excessively detailed audit documentation requirements based on the ISAs and the associated over-zealous regulatory regime have turned the main perceived objective of an audit into creating a weighty file as a defence against inspection risk rather than whether the accounts are true and fair. This cannot be right.
* ISA(UK) 315 ( Revised ) on risk of material misstatement is a total disaster from an audit quality perspective as at 181 pages it’s far too long, far too time consuming, too theoretical, engenders a massive amount of checklist completion, box-ticking and suppression of proper thought.
* The massive checklists that pack builders construct based on the ISAs create unnecessary drudgery for our audit staff and create severe recruitment and retention issues.
* The full set of ISAs (UK) when applied to SMEs create stress and burnout.
* They also make it hard to ‘see the wood for the trees’ and focus on the big issues.
*The full set ISAs ( UK) when applied to SMEs result in gross over-regulation particularly as we do not have huge compliance departments, massive training departments and cutting-edge technology involving automation and artificial intelligence that the larger firms have.
* Whilst the ISAs have led to armies of inspectors, eventually they will eventually result in no firms willing to perform SME audits. This is because SME audits based on the full suite of ISAs are becoming uneconomic and too high risk from a firm’s risk management perspective.
* The full set of ISAs also result in too little time being available to provide recommendations on how the foundations and building blocks for business growth, scaling up, investment and survival can be improved. This is anti-growth.
*By the FRC refusing to adopt the internationally approved ISA for LCE, UK firms are being subjected to an unfair restraint of trade. This is when compared to European neighbours such as France, Germany, Belgium, and Switzerland which have the benefit of much shorter local standards for small or less complex entities, and countries such as the Nordics that were at the lead in pushing the ISA for LCE. This puts UK SMEs’, and their auditors at a major disadvantage compared to international competitors. This is again anti-growth.
* Continuing Professional Development requirements that have become more demanding.
*Insufficient resources and available time to defend successfully against inspection and sanction processes.
.*Notification requirements for small audit firms that exceed those of larger firms.
* We have less resources to influence standard setters.
Q5. The changes we request in relation to SME audits including regulatory or policy changes include the following:
* Adopt the ISA for LCE which runs to only 158 pages and is more principles-based, and therefore in line with the Brydon Report whose deregulatory parts appear to have been ignored. This cannot be right. See the comments of support for the ISA for LCE attached.
* Extend with suitable quality safeguards an ISA for LCE ( UK) to include medium-size companies that aren’t PIEs. That would be very useful deregulation that would please Ministers.
*Include people from SMEs and small firms on the FRC Board, its committees and its senior staff bearing in mind that SMEs represent more than 99% of UK businesses with a combined annual turnover of over £2 trillion and over 16 million people. Currently we seem to be totally unrepresented which cannot be right.
*As a top priority, establish a UK endorsement board for auditing and ethics standards with people selected amongst others from the regulators, the SME sector and small firms, the public sector, investors, large firms, mid-size firms and academics. This would help end the current anti-deregulatory system whereby the standard setting and UK international influencers on the IAASB are only regulators who have consistently refused to endorse any form of streamlined auditing standards which is exactly what SMEs, small firms, and economic growth need. Meanwhile there is a UK Endorsement Board for financial reporting standards which has the benefit of wider and deeper experience thereby being able to take more balanced and acceptable decisions in not only standard setting but in international influence. A UK Endorsement Board for auditing and ethics standards would have much more credibility and be more likely to come to a better balance between regulation and deregulation. It would also remove the systemic problem which has been undermining UK auditing standard setting for too long and leading to excessive auditing standards for non-PLC audits. It would also help remove the intimidation independence risk whereby audit stakeholders are frightened to give candid comments to the regulator who can take away audit registration or apply other tough sanctions against firms. This would also improve UK auditing and ethics standard setting.
*Follow the example of financial reporting. Why has there been no attempt at streamlining auditing standards for SMEs when in the financial reporting area, the IFRS for SMEs was effectively adopted by way of FRS102 by the FRC in 2013?
*Adopt streamlined auditing standards for non-transnational audits. Why aren’t local standards developed, if necessary, for SMEs and other entities operating nationally when the Forum of Firms members are only under an obligation to follow ISAs for transnational audits?
* Amend the current system whereby impact assessments are made by the standard setters themselves which is akin to ‘marking their own homework’ and seems to be a clear self-review independence threat.
* Repeal the recent notification requirements from SMEs auditors which don’t apply to PIE auditors.
* Recommend strongly to IAASB that the disastrous ISA 315( Revised) be greatly reduced in length, made much less theoretical and far less time consuming.
* Recommend to the IAASB that the continual programme of ISA revisions be wound down and instead a re-codification should take place of all ISAs with say an objective of restricting their overall length to 400 pages by making them more outcomes-and-principles-based. With respect, at present the ISAs with the exception of the ISA for LCE seem to be written by regulators and technical partners for regulators and technical partners, and not the rest of us.
* Reduce drastically the budgets for standard setting other than for reducing the length, detail and complexity of standards. Otherwise, all we get is regulatory creep and no deregulation, and excessive standards that in practice decrease true audit quality as shown in the attached comments.
* Drastically reduce the length of FRS102 which has recently grown yet again. It should be borne in mind that its true users should be owner managers and small firms rather than technical partners.
* Recognise that the new IESBA
Project on firm’s culture and governance would be anti-competitive if applied to non-PIE audit firms. It would also seem like regulatory empire building if applied to activities that are currently non-regulated.
* Ask the regulatory parts of the professional bodies to adopt as much as possible an outcomes-and-principles-based approach to inspections with more emphasis on the accounts and the big issues. The current system results in a perceived main audit objective of creating a massive file to reduce inspection risk rather than the objectives of reasonable cost, audit innovation, focus on the significant risks and delivery of added value.
* Ask the regulatory parts of the professional bodies to which the FRC. delegates powers to provide a statement in their annual report on what they are doing to help the FRC meet its growth duty and comply with its remit letter from the Secretary of State.
Q6. The FRC needs to consider that because of increased employer national insurance contributions and higher minimum wages, the SME sector will continue to suffer, and the economy to flatline, unless there is genuine deregulation and a reduction in regulatory costs. Over-regulation seems to be killing off auditing by small firms. Startups, growing business and the UK Government’s growth agenda urgently need deregulation. Why is the process of reviewing SME audits taking a year when the case for streamlined auditing standards is so obvious to everyone except the regulators? Streamlined auditing standards and a refocus by audit inspectors away from requiring excessive audit checklists and weighty audit files would help produce lower cost audits that deliver more value, innovation, and more competitive SME audit markets. SME auditors would then be able to provide far more help to the SME engine room of the UK economy by actually delivering higher quality audits and more added value in terms of helping SME growth, scaling up, investment and survival.
Issuing yet more audit guidance is not the answer.
Your faithfully,
Howard Gross BFP FCA FCCA CTA
Director
Comments from Small Practice Firms and Audit File Reviewers
For the types of companies we audit it feels that the ISAs are far too demanding. They are more suited to PLC and international companies audits.
(The existing ISAs) are increasingly onerous, certainly in the last 4 to 5 years with continual changes in regulation which to be frank are because of the higher profile corporate failures of ‘the Big 4’ rather than issues at the other end of the market. This has led to a reduction in human resource in the profession leading to increased wage costs which have assisted in prolonging the period of high inflation, whilst increasing the cost burden on our clients who not only have to deal with a more involved engagement but also with increased cost to boot.
Among the problems ( of the existing ISAs, is) …the ever-increasing time necessary to comply with all the requirements of the audit checklists.
…doing (audits) based on the existing ISAs (is) too burdensome.
The present paperwork is too detailed for small audits.
At present one cannot see the wood for the trees.
( The ISA for LCE) would be perfect for small ( audit) firms! (It) would make audit by smaller firms much simpler and cost effective. Staff would be more engaged on audits as they would have time to focus on important areas.
( The ISA for LCE) makes a lot of sense. A lot of legislation is inappropriate for smaller, low risk, low complexity companies.
… It seem to me that the ( ISA for LCE) does a pretty good job in 158 pages of telling the auditor what they need to do to carry out an audit …It may also send a message to the standard setters that not all the stuff they produce is actually helpful in protecting the investing public…
(The ISA for LCE) results in …less box ticking…reduces the bureaucracy of audit…(and) …the number of N/A answers. (It) would allow us to use our time on productive work which would add value to the client’s business.
Of course most of our time is spent form filling, instead of looking at whether the numbers make sense in relation to my knowledge of the business.
In general I would support a reduction of “box ticking”; far too much of that.
Everyone will find ( the ISA for LCE) much better. It would be cheaper, less to learn and would enable staff to concentrate on the essentials,
( The ISA for LCE ) would make audits cost effective for audits and firms. Staff (would) be more focused as some of the bureaucracy of auditing would be taken out. (It) would improve staff’s perception of audit….(It) would result in )better use of chargeable time if audits were streamlined.
It’s obvious to all …except our regulators that one size won’t fit all.
Difficult to answer without a greater understanding ( or use) of the ( ISA for LCE) but what I have seen does not fill me with dread.
The hope is that ( the ISA for LCE) is easier because it is less prescriptive , but it is not necessarily true….IAASB has said that it will be succinct. The problem with conciseness is that it can leave out important stuff…. seeing the files that I do, many need all the guidance that they can get….Develop more FRC ‘what good looks like’ or ICAEW ‘ good looks like’. I imagine that no regulator would want to generate a “ model “audit file “ because they believe that it would be followed slavishly. However that’s exactly what many auditors would love.
I think that the ( ISA for LCE) is a welcome step in the right direction for both audit practitioners and for our clients, who are struggling with continued and increasing regulatory red tape which detracts their focus from day-to-day operations.
There is nothing ( within the existing full series of ISAs) that gives guidance on proportionality to a firm such as mine. What I need is proportional guidance for a small firm such as mine with small audits. This is anti-competitive.
Firms are withdrawing from the (audit) market reducing competition which will increase cost.
Whilst we try not to view our work as box ticking, removing some of the regulatory burden which is more targeted on larger entities would enable our colleagues to focus more heavily on key issues and look to deliver a more efficient engagement to clients.
We have not given up on auditing but are considering doing so particularly after a recent monitoring visit which picked up on some subjective interpretations of the new ISAs particularly surrounding documentation of risk analysis as if this was something new to auditing. Assessing risk has been inherent in all our audits for the past 40 years.
Existing ISAs ( are) increasingly time consuming and repetitive and, in the majority of cases, unnecessarily so.
To me ( the full series of ISAs) indicates a limitation on audit and any ability to think laterally.
(The ISA on LCE would result) of course( in) more time to sit back and consider useful business advice.
Too much of auditing standards( the
full series of ISAs) do not relate to the smaller firm.
What is unhelpful is that we have a set of standards ( the full series of ISAs) that are heavily geared to the perceived needs of large listed companies.
The starting point should be what work we need to do to have confidence that the accounts are right. The answer is a lot less than we are doing at present.
The (ISA for LCE) could in my view be used for most jobs. It is a far superior product. In my view it gives the auditor space to think without being continually bothered about whether they are complying with ISAs. Any doubt you can get the 100 page standard out of your bag and check. You don’t have to be dependent on a system to ensure compliance. The basic problem with the current ISAs is that it has moved the priority away from making sure that the accounts are right to making sure that the audit is compliant with ISAs regardless of whether the accounts are right….
My gut feel is that ( the ISA for LCE) is bound to save time and reduce cost. We should be able to cut down on checklists and eliminate some work that we just do to ensure compliance with ISAs.
There is a body ( of people) out there who just want to link complexity to size…..This is without being able to explain why or what extra work should be done using full ISAs to reduce the risk of the accounts being misstated.
The charity sector .. (is) worried about the availability of auditors as firms stop doing it.
Why (is the FRC) preventing charities from using ( the ISA for LCE) ? They continue to pay over the odds for their audits that follow over-engineered standards. That is money that could be spent on their charitable activities.
I would not wish these small charities ( whose constitutions require an audit and cannot get them changed because it would require 100% agreement ) forced out of existence by the onerous burden of an ISA audit.
To try to apply a full ISA audit ( to these charities) is inpossible. The answer to virtually all the questions in an audit checklist is N/A. It would be very time consuming and achieve nothing.
One of the big issues in this country is the requirement in not small groups to be audited. This leads to some pretty tiny subsids being audited with the weight of all the ISAs on them. There are some parent company guarantees around but very few as directors are concerned about the potential consequences as there is no case law on this yet. They can’t be given oversea company guarantees so we have a plethora of small company audits due to this.
I’m trying to give ( auditing) up and it would be mainly due to regulation, interest and time spent on compliance with…regs.
Why (I) gave up auditing was due to length and complexity of standards and over zealous oversight.
Why ( I) gave up auditing was due to regulation and the relevance of audit and the niceties of various standards etc to the clients I acted for.
….auditors in the firms that I go to do not read the ISAs fully. They are too voluminous and the language is not user friendly. They will pick out certain paras.to read when they come up against an issue and feel that they need to get to the source of a requirement. Firms are extremely dependent on their audit methodologies….It’s all a bit depressing really but does point the way to wanting an ISA that people will at least find short enough to read.
We would welcome any simplification of the standards. Streamlining the standards would encourage audit software providers to condense the endless pages of what are for the most part irrelevant ‘boxes’.
Many of us have known for many years that the audit procedures for medium sized family businesses are not fit for purpose or of any practical use in the majority of cases.
Much of the work done by auditors to tick all the necessary boxes is of little use to businesses.
Certain audit programme providers like……..are putting loads of extra forms into their products to document the work done on estimates so that audit firms are now completing them moronically and not really standing back and thinking.
I think every firm that I work with ( as a file reviewer of small firms) asks if I know of any audit manager going spare as they are unable to recruit. It’s not so bad with graduates and apprentices but they tend to move on once qualified.
What we are missing here is that many small audits are of small subsidiaries.
A massive issue though is subsidiaries of non-small groups with overseas parents.
I agree that the idea that there would be
no deregulatory benefits ( from the ISA for LCE) is entirely wrong.
ISA (UK) 315 is written to apply to banks, insurance companies and very large entities with lots of branches not eg. to (a) company that sells ladies’s fashion from one small shop. I am citing a subsidiary of a ( foreign parent) that I review here.
It’s ISA 315 that is the straw that has broken the camel’s back. Firms are fed up assessing the different elements of risk in each significant assertion. They see it as a complete waste of time when (they) already know eg. the client never gets the stock valuation right and they will have to do loads of work on it. The impact of having to spend an inordinate amount of time on planning is that they end up doing less substantive testing when it is really needed.
I think that the quality of audit work has gone down since ISA 315 came into effect. Audit teams are taking so long to work out how to complete the planning documentation that they are spending less time on detailed testing.
The revisions to ISAs ( UK ) 240, 315 and 540 by have contributed to a decrease in the quality of audit work as auditors struggle to work out how to fill in boxes rather than really thinking about fraud and other risks. I now find that I am spending considerable time in telling firms how to complete the boxes in risk assessment forms rather than properly discussing risks. It goes against everything I have tried to do in my career which is to give good, helpful proactive advice to firms. Even I am thinking that it’s time to get out.
Particularly following the introduction of ( ISA 315), firms spend a huge amount of time filling in boxes…. This is a waste of time and I think that audit quality is decreasing as people stop thinking and concentrate on how to fill in boxes.
The use of “ significant risks”, rebuttable presumptions and non-rebuttable presumptions which are almost impossible to resolve with LCEs…The constant reference to risk spectrums…but what real benefit does it add to an audit…
With so many boxes to tick there can be a tendency to gloss over the crux of the matter which runs the risk of being lost amongst the less relevant.
I suggest that we should be doing less box ticking since ISA315 anyway. However, that does not appear to be so as the working papers get longer and longer.
The time taken to complete quality audits has gone up exponentially
The( ISA) standards on risk are just not useful to us, we could do a better job without them.
ISA 240 does not lead into thinking how fraud could occur. It just turns into some boxes to complete that indicates all is well…As to professional scepticism some people write ” We must be sceptical throughout the audit” and think that is enough, and indeed leave evidence on the file that they have not been sceptical at all.
We need more stand back rather than more standards. I’m finding that eg auditors are so bogged down in completing programmes on accounting estimates following revisions to ISA(UK) 540 that they are doing less work on really auditing and thinking about significant estimates.
…clients and staff (would ) welcome the ISA for LCE.
The worry is that it’s virtually impossible to recruit trained audit staff now and trainees want to avoid audit work if they can as it is seen as tedious and boring pointless box-ticking.
Also there is no time to give clients
some good business advice in the management letter which is a real lost opportunity.
I think that audit quality is decreasing as people stop thinking and concentrate on how to fill in boxes.
There would definitely be time and cost saving if pointless box ticking was eliminated allowing auditors to think clearly where the risks truly lie and concentrate on them.
Compliance with ISQM1 is not in dispute. Management of quality would still be an integral part of complying with the ( the ISA for LCE ).
Not having the time to think about the possibility of ( fraud) …Not being trained adequately by experienced supervisors… Nowadays, audit budgets are much tighter, and the time to teach and reflect is squeezed out.
I have recently given up Registered Auditor status…An audit is far too complex, time consuming and unnecessary ( thankfully) for the type of client that we have.
I would like to give up as the regulator treats you as if you are a postmaster. Whatever you have done is wrong even if the client has suffered no loss.
It will be easier to explain ( the ISA for LCE) to the client and less work for the client to prepare.
There is no consultation with smaller firms (or their issues are ignored).
I think that there is not enough training from the audit system providers on how a firm can focus their audit work appropriately.
We all want quality audits performed as efficiently and effectively as possible.
The current standards are not proportionate and scalable.
I wish to give up now.
More and more small firms are leaving the audit market …the changes to ISA 315 have made a lot of people fed up and they are just pulling out of audit. Having the LCE would really help as it is so much more comprehensible
Scepticism seems to be getting worse in the files that I look at rather than better- teams are so rushed for time that they are seeking any old explanation given by management
The small amount of application material ( in the ISA for LCE) is deliberate so that regulators in different jurisdictions can adopt and add their own as appropriate. This is a benefit not a disadvantage.
Clients …want comfort that their accounts are about right but at least cost.
A short version ( of the ISAs) might therefore be welcomed.
There is a fundamental problem baked into the audit quality monitoring process( as follows
-The current system is seen as adversarial and not collaborative
-the external reviewers) are seen as finders of fault, with threats of penalties, restrictions and hearings. They are not perceived as being helpful or spreaders of better practice
-Firms tick 2-3,000 boxes because they believe the external reviewers will see that and leave them alone.
*Firms get criticised for failures, but get no kudos for best practice.
*This stifles innovation, beyond trying to cut corners to save chargeable time.
I act for a group which has a non-statutory audit. Ticking boxes is not achieving anything.
Adoption of the ISA for LCE would be great news and less likely to cause an error such as ticking the wrong box. It will be easier to explain to the client and there will be less work for the client to prepare.
Regulation for small LCEs has become a box ticking exercise which is not what our clients expect of us.
(Things have ) gone into overdrive “ to get the small practitioner”.
We would welcome the ISA for LCE, though obviously this would require another round of training and there is the possibility of blurred lines and misunderstanding of further options in place.
The ( regulators ) should note that 90% of the limited companies( that are ) not owned by a large group company……. are small, and imposing regulations which serve very little purpose leads to a wastage of money.
….we have not given up, though we are contemplating this as the number of audits have diminished substantially as the thresholds have been raised. We now only carry out 4 audits and with the increased regulation and documentation, not to mention the regulatory fees..We are almost at the point of feeling that our efforts are better diverted elsewhere. We have been very proud to have been registered auditors and feel that we can do as good a job at a fraction of the cost of the larger firms.The increased regulation will push businesses further into the hands of the larger firms (whose) exorbitant fees are a shock to most SMEs and more importantly charities!
As a practitioner I cannot remember all the requirements set out in 1,000 pages of ISAs . It is impossible and like every other auditor I am relying on a system to ensure compliance. However you look at this, such a system is bound to involve a lot of box ticking. At 100 pages I will be able to remember all the requirements of the ( ISA for LCE ) just as I could with the original CCAB Auditing Standards. I am then less reliant on checklists and more likely to be thinking.
The difficulty in recruiting and retaining competent staff….The sheer drudgery of completing 800+ disclosure checklists and 3,000+ question audit packs ….The constant change….A feeling that the regulations are aimed at larger firms who get it wrong, as evidenced by ….reports….Small firms feel they are paying the price for Big firms’ failings….I am not planning to get out any time soon from supporting other auditors, but I am much less wedded to keeping my 20 or so audits.
I wish that ( the FRC) could see the struggles that small firms are going through and their frustration with ISAs now.
There is no doubt in my mind that were all companies required to have an audit ( not necessarily an ISA audit but maybe an old UK Audit Standard audit ) the quality of information on the record and the behaviour of the directors would be improved. One of the effects of this may be that businesses would cease earlier and the impact on creditors would be less. That in itself may save many viable business(es) from failure due to failure of one of its customers. The other effect is that if you avoid bad debt you leave more money for those companies to invest, pay dividends and pay more in corporation tax.
In using the full clarity ISAs it is difficult to split out and disregard the requirements that do not apply to less complex audits and companies. The consequence is that on every ( ISA for LCE audit engagement ) we are wading through a sea of requirements that will never be applicable.
Even if a requirement on a work program is not applicable it still takes time to read and consider before a ‘n/a’ or an explanation is written at the side of it. On any less complex( audit engagement )there are a very large number of ‘n/a’ entries that cumulatively take a long time to deal with. I think that this may save the thick end of a man day on each ( audit engagement), maybe £1,000 to £1,500.
When regulators … perform file reviews on their inspections then on ( ISA for LCE audit engagements ) they will be measuring compliance against a much shorter, straightforward standard. That should take less time, be less expensive and reduce the amount of non-compliance and conflict between regulator and firm. Visits should therefore be less intrusive and time consuming as a result.
There are two significant implications for training and CPD ( on the ISA for LCE). The first is that for firms that only deal with LCE audits, and this will be the vast majority of firms by number, they will not need to spend time educating staff to deal with complex situations that will never come across in practice. Second, because of this, training can be focused on the type of audits and situations that staff face on a regular basis. This should in turn improve the quality of work that the firm actually improves.
I am not a trainer in the ( full ISA series) audit systems of the firms that I work with, but that is what I am increasingly becoming. Maybe it’s time to retrain or offer a different service…I regularly ask the firms I work with, “What did the provider say? Or “ Did you have any training on the use of the new forms? …It’s dispiriting for me, and I suspect it’s worse for some of the firms I work for…
Lots ( of small practice firms) are considering moving out of audit if they haven’t done yet. One of the 2 partner firms that I review is up for sale and has had problems finding buyers as it has a small audit portfolio. This is only going to get worse as the ISAs continue to get revised.
When we adopted FRS 102 we reduced UK GAAP from 4,000 pages to 200 pages. Nobody died as a result and no one is saying that if we had the old standards this or that wouldn’t have happened.
FRS102 has jumped to 484 pages. And what do they think is the likelihood that anyone reads it? Most practitioners only do a few audits and most income comes from unrelated matters, so we do not have the time or inclination to read 484 page tomes.
28 August 2024
