Earlier this month, the Nordic Federation of Accountants (NRF) published a consultation on a new Standard for Audits of Smaller Entities (SASE) that, if finalised, will apply in Norway, Sweden, Iceland, Finland and Denmark.

We’re concerned about smaller entity audits

Smaller entity audits have been a central ICAEW concern for over a decade. There has been a lively debate about the benefits of audit, alternatives to audit and the importance of credible choices for financial statement assurance.

Concerns about auditing standards and audit exemption thresholds are not limited to the UK and new impetus has been added to this debate as a result of references to ‘proportionate’ audits for small entities in the revised EU Audit Directive, due for implementation next June.

Proportionality and professional judgement: is there a case for change?

Levels of audit exemption in the Nordic region are low and large numbers of smaller audits are still performed there. The NRF proposals have been in development since the beginning of 2014, involving engagement with a wide range of stakeholders including regulators, oversight bodies, industry and tax authorities, as well as practitioner focus groups.

The proposed SASE has been developed with a view to placing the practitioner’s use of professional judgement at the heart of the audit and has been written for smaller entities from the bottom up. It is not a cut down version of ISAs. It is intended to be applied by practitioners who are skilled in exercising professional judgement.

This is not to say that there are no specific requirements in the proposed standard, far from it, and the proposed standard emphasises the importance of robust and comprehensive documentation as well as compliance with ethical and quality control standards. Where it differs from ISAs is in the absence of detailed application material directing auditors as to how to exercise their judgement and exactly what to document.

The introduction to the proposals states that the Nordic Federation is:

…convinced [that] auditing is, and will remain, a valuable service also for small entities. A prerequisite for the auditor to remain relevant for this group is however that an audit can be performed efficiently and with high quality. International Standards on Auditing (the ISAs), which apply to all audits today, have become more and more extensive and increasingly difficult to tailor for an efficient audit of small entities.

 The NRF is seeking comment on its proposals by 19 October. ICAEW will be responding through the Audit and Assurance Faculty and I am very keen to hear what you think.

Source: ICAEW (The Institute of Chartered Accountants in England and Wales) – By Michael Izza