A New Standard for Audits of Less Complex Entities

Smaller, less complex entities play a vital role in the world’s economy and account for the great majority of entities globally. In an increasingly complex world with evolving reporting needs, a need for a set of high-quality requirements tailored for the audits of less complex entities has emerged. 

In 2021 the IAASB issued a public consultation for a proposed, stand-alone standard for LCE audits designed to be proportionate to the typical nature and circumstances of an LCE audit and responsible to stakeholders’ challenges.

Group audits were not included in the scope of the original exposure draft of the proposed ISA for LCE. Given stakeholder feedback, the IAASB reconsidered and developed proposals to address audits of less complex groups. This new Part 10 focusing on LCE group audits was issued for public consultation on January 23; feedback is requested by May 2, 2023.

Following stakeholder feedback on the current consultation, the IAASB envisions approving a final standard in December 2023. When final, the standard will meet the growing global need for a separate standard for audits of less complex entities, while reducing the emerging risk of jurisdictional divergence.

Recent Developments

• The New Proposed Standard

  The new stand-alone standard for audits of less complex entities:

  • Is designed specifically for audits of a less complex entities
  • Is based on the underlying concepts from International Standards on Auditing
  • Was developed to be understandable, clear and concise
  • Reduces the risk of jurisdictional divergence by driving consistency and comparability globally
  • Will achieve a quality audit engagement
• Exposure Drafts (available in English, French & Spanish)
    Proposed Part 10, Audits of Group Financial Statements of the Proposed ISA for Audits of Financial Statements of Less Complex Entities Proposed International Standard on Auditing for Audits of Financial Statements of Less Complex Entities Projet de Norme internationale d’audit applicable aux audits d’états financiers d’entités peu complexes Norma Internacional de Auditoría para auditoría de estados financieros para Entidades Menos Complejas Propuesta
• Guidance & Resources
    Proposed Supplemental Guidance: Authority of the Standard French: Proposed Supplemental Guidance: Authority of the Standard Proposed Supplemental Guidance: Auditor Reporting Proposed International Standard on Auditing for Audits of Financial Statements of Less Complex Entities - Appendix 1 - Glossary of Terms Mapping Documents - ISAs to Proposed ISA for LCE
• Webinars & Videos
    LinkedIn Live Session: Who Can Use the Proposed Standard and Will It Be Used? LinkedIn Live Session: What Makes the Draft Less Complex Entities Standard So Important? LinkedIn Live Session: What Could the Proposed LCE Standard Mean to Firms and Practitioners? Introductory overview video (English) Introductory overview video (French) Introductory overview video (Spanish)
• Background & History
    Key Takeaways from IAASB’s Third Conference on the Audits of Financial Statements Less Complex Entities Discussion Paper: Audits of Less Complex Entities Feedback Statement and Way Forward- Audits of Less Complex Entities Less Complex Entities Communique 1: Update on Efforts to Address Issues Less Complex Entities Communique 2: Developing a Separate Standard for Audits of Less Complex Entities
• International Reference Group

  A key component of the IAASB's approach to less complex entities was establishing an international reference group. This Reference Group, comprised of representatives from the global community, reviewed and provided input into the new standard as it was drafted. 

• Complexity, Understandability, Scalability, Proportionality

  Responding to stakeholder feedback and consultations over a number of years, the IAASB developed a two-pronged approach to create a separate standard for less complex and simultaneously address complexity, understandability, scalability, and proportionality (CUSP) across all the International Standards on Auditing. Find out more about the CUSP workstream on the project web page.