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The International Auditing and Assurance Standards Board (IAASB) has released a new global auditing standard, ISA for LCE, specifically designed for smaller and less complex businesses.

The new standard, ISA for LCE, is a first of its kind, marking a significant shift in the auditing landscape, according to a statement from the standard setter. It will come into force on December 15, 2025.

Traditionally, smaller businesses have had to navigate auditing standards designed for larger, more complex entities. This new standard offers a more tailored approach, addressing the unique needs and challenges of smaller businesses.

“The static nature of audit is reinforced by standard setting processes that routinely emphasise or rely on the notion that an audit is an audit. Consistency of practice is certainly important, but it is not easy to innovate from the conceptual base that an audit is an audit (and nothing else),” says Chris Humphrey, a member of Sir Donald Brydon’s advisory board.

The release of the ISA for LCE standard represents a significant milestone in the evolution of auditing standards. It acknowledges the unique needs of smaller businesses and provides a tailored solution to meet these needs.

The new standard is applicable to both private and public sectors and is premised on the firm being subject to ISQM 12 or national requirements that are at least as demanding.  Quantitative thresholds for the use of the ISA for LCE are determined by legislative or regulatory authorities or relevant local bodies with standard-setting authority in each jurisdiction.

As Mike Suffield, director of Policy & Insights at ACCA, notes, “The standard should support a consistent and high-quality approach on the part of audit committees, with an eye on the Governments objective of broadening the audit market.”

The introduction of this new standard is expected to significantly enhance audit quality and efficiency for smaller businesses.  This targeted approach is likely to result in more accurate and meaningful audit outcomes, ultimately contributing to improved financial transparency and accountability.

Rigid standards have constrained growth

Smaller businesses have indeed faced challenges with audits in the past, often due to the rigid and sometimes complex standards that are designed with larger enterprises in mind.

Audits can be expensive, and smaller businesses may not have the financial resources to bear these costs. The fees for professional auditors can be a significant burden for a small business. In the same vein, small businesses typically have fewer staff and less specialised accounting expertise than larger companies. This can make preparing for and supporting an audit process more challenging.

For many small business owners, the familiarity with the requirements and procedures of an audit is sometimes lacking. This has led to difficulties in compliance and preparation. Keeping up with changes in audit standards and regulations can also be particularly challenging for smaller businesses that do not have dedicated compliance teams.

Even minor audit adjustments or findings can have a significant impact on SMEs financial statements and operations.

Implementation dates

After the ISA for LCE becomes effective on December 15, 2025, there will be an initial period of stability of at least three years. Meaning any possible future revisions to the ISA for LCE would not become effective before December 15, 2028.

This initial period of stability will provide stakeholders time to adopt and implement the standard before introducing any possible revisions. The IAASB will consider the best way to maintain the ISA for LCE after the initial period.

However, a core consideration will be that the ISA for LCE must remain up to date and, to the greatest extent possible, consistent with the ISAs.

Article from Accountancy Age

The world is changing fast. Economically, politically, and technologically, accounting teams and companies face a near-constant change flow. It can be hard to know how to future-proof your business, where and when to invest, and where the next challenge may come from. But if you know what to look for, there are signs of what 2024 may hold for the accounting profession. This article unpacks four areas that will be key to accounting success in the new year: people and talent, compliance and ESG, accounting technology, and that buzziest of buzzwords – AI.

People and talent

The accounting skills shortage is, unfortunately, likely to get worse. FloQast data suggests that a significant proportion of accountants (53%) are ready to walk away from their current employer if there isn’t a significant transformation of their roles and responsibilities. Even if not all of them follow through, such an exodus could result in massive consequences for businesses across industries. The same survey series found that 99% of accountants are burnt out, 60% struggle with work-life balance (doubting they can complete the work they’ve been assigned), and only 5% would rate their fulfilment in their job as an A+. 

Business and HR leaders must work together to find solutions to keep their accountants fulfilled. These could range from finding modern tools that use automation to end mundane ‘bean counting’ to providing mental health support during busy times of the year like tax season.  

Compliance, ESG, and IPOs

CFOs report fears of a greater risk of noncompliance, mostly due to concerns around a lack of strategy in their current compliance function, insufficient staffing and skills gaps in their teams. Not to mention the absence of digital transformation – in which technology is increasingly implemented and embraced throughout the organisation – which can help teams operate more efficiently and collaboratively within existing processes. As a result, CFOs must prioritise investment in compliance in 2024, especially as new reporting requirements, like the Corporate Sustainability Reporting Directive (CSRD) come into effect. When the legislation goes live, 10,400 non-EU enterprises will be subject to CSRD compliance, as a third of these organisations are based in the United States. Those who tell their ESG story via sound data collection, standardisation and accuracy, will ensure audit-ready, error-free reporting.

A potential jump in IPOs will also drive compliance requirements. With the inflationary needle (hopefully) moving in the right direction, the IPO market is showing signs of promise and may continue a recovery into 2024. 

Organisations looking to IPO will need to supercharge their processes. Compliance processes will need to be robust to stand up to investor scrutiny. Not only does compliance help companies avoid corporate and individual liability, but it also enhances investor confidence by demonstrating a commitment to transparency and accountability.

Accounting technology

In the new year, automation will continue to reshape ‘traditional’ accounting processes. Streamlining data entry, reconciliation, financial reporting, and compliance-related activities while also working to modernise the close process will all become pivotal if accountants and their companies are to succeed. As technology takes on a more significant share of routine tasks, financial experts must adapt and add value in other areas of the company. And as the role of finance professionals evolves in this way, there will be an even stronger emphasis on data-driven decision-making. 

This kind of digital transformation has swept through many industries, and now accounting organisations are under pressure to achieve financial transformation through technology. For example, cloud-based software is becoming an integral part of accounting operations, as companies embrace a cloud-first strategy for scalability, flexibility, and innovation. Simultaneously, as organisations integrate cloud-based tools and services into their core infrastructure, they will increasingly need to implement cloud-based security measures to bolster their financial transformation efforts. Additionally, AI and automation will continue to be increasingly used to streamline routine tasks, saving time for accountants.  

Finance teams will likely continue to undergo digitisation over the coming 12 months. A dynamic approach to financial transformation will put organisations one step ahead. Tools that advise on financial preparation, compliance roadblocks and strategic planning will ensure businesses are ready for the next phase of their growth journey.

Artificial intelligence 

We end with the Collins Dictionary’s word of 2023: AI. Like it or not, it’s transforming the way we work. While there are concerns about the use of this technology, when used wisely it can be a powerful ally to support understaffed teams, enhance strategic thinking and boost employee potential. 

But you might ask, what does AI have to do with accounting? Well, as with all industries, as targeted artificial intelligence applications come to maturity, they are going to become central to the success and viability of accountancy businesses. The accountancy sector is experiencing a labour shortage, and this is where AI can step in to process data, provide valuable insights and streamline everyday tasks. Improved efficiency frees up accountants’ time so they can focus on complex financial analysis. We will increasingly see accountants embrace AI tools, meaning they can be more strategic and focus on organisational long-term success.

Indeed, to keep the industry as a whole afloat amidst talent shortages and retention issues, accountants must modernise and strive for transformation on all levels: financial, digital, and structural. Such a transformation can be enhanced by AI – not just implementing it in limited use cases but normalising its widespread usage. Indeed, we may well soon reach the point where companies that don’t implement AI in some way will be seen as ‘falling behind’ their competitors. As a result, CFOs will be at the forefront of enabling digital transformations – adding another layer to the accounting function’s already growing strategic importance.

By Adam Zoucha, MD EMEA, FloQast writes in Accountancy Today

Heather Sandlin reports

These include risks related to the current economic environment for example: going concern, impairment, recoverability and recognition of tax assets/liabilities

The priority sectors are construction and materials, food producers, gas, water and multi-utilities, industrial metals and mining and retail.

These priority sectors are only one risk factor amongst the many which the FRC takes into account when making selections.

The financial services sector, including banking and insurance, continues to be a focus of reviews and is included annually in the selections made.

Furthermore, the FRC has announced a number of programmes of corporate reporting reviews and audit quality inspections.

These include risks related to the current economic environment for example: going concern, impairment, recoverability and recognition of tax assets/liabilities.

The FRC will also prioritise climate related risks, including TCFD disclosures, implementation of IFRS 17 – insurance contracts and cash flow statements.

Writes Liam J Moran in Accountancy Today

The FRC has confirmed its plan to scale back audit changes by taking forward under half of the original 18 proposals it set out in the consultation with its stakeholders.

It intends to publish an updated code in January 2024

The news comes after His Majesty’s Speech to the Parliament did not prioritise the primary legislation to modernise the regulation of audit, corporate reporting and governance.

Despite the move FRC stated that there is “broad stakeholder consensus” that this reform continues to be “necessary to restore investor and public trust” following the of several high-profile businesses including Carillion, BHS and Thomas Cook.

The FRC aims to enhance the quality of audit and corporate reporting and governance, whilst supporting the UK’s economic growth and its international competitiveness and the government’s broader ambition of making the UK “the best place in the world to start, grow and invest in a business”.

Under the new revised code:

• There will be a small number of changes that streamline and reduce duplication associated with the code that were overwhelmingly supported by stakeholders in the interests of reducing burdens.
• The main substantive change the FRC will take forward concerns revisions to its original proposal on internal controls. The decision has been informed by “very helpful” stakeholder feedback to ensure it ends up with a more targeted and proportionate code revision. This includes allowing more time for its implementation and ensuring the UK approach clearly differentiates from the much more intrusive approach adopted in the US.

However, The FRC will not take forward the remainder, over half, of the original proposals. These include:

• Those relating to the role of audit committees on environmental and social governance and modifications to existing code provisions around diversity, over-boarding, and Committee Chairs engaging with shareholders.
• A number of other proposals as a result of the Government’s recent decision to withdraw its Statutory Instrument relating to an audit and assurance policy, reporting on distributable profits and resilience statement requirements.

It intends to publish an updated code in January 2024. However, the FRC is conscious that some stakeholders have raised concerns about how its guidance issued under the code can have unintended effects on businesses, investors and their advisers.

To help tackle this, from January 2024, the FRC intends to give an additional remit to its Stakeholder Insight Group to provide the FRC with advice on whether there are aspects of its current and planned guidance associated with the code that could be improved to ensure the right balance is struck between supporting effective governance and reducing unnecessary burdens.

The group’s membership consists of a mixture of investors, preparers, advisors and related membership bodies. It will report on this additional remit directly to the FRC CEO.

Richard Moriarty, FRC CEO, said: “Once the updated UK Governance Code is issued in January 2024, we will as our next priority start to engage with stakeholders on how best to review the Stewardship Code, including understanding how it works in practice and what changes may be required going forward to ensure it remains fit for purpose. In doing so, we recognise the need to engage closely with other regulators who also have an interest in the operation of this Code.”

The news comes after ICAEW criticised the exclusion of an audit and corporate governance reform bill from the King’s Speech.

Writes Accountancy Today