Practitioners have identified scalability challenges when applying the Canadian Auditing Standards (CASs) to audits of entities whose nature and circumstances are less complex – particularly, Canada’s many small and micro-entities.
Based on concerns raised by some stakeholders, the public interest considerations include the following:
- Practitioners may not consistently apply the CASs in LCE audits, which may affect the performance of high-quality audits.
- Practitioners may spend unnecessary time and effort performing procedures that may be ineffective or create redundant documentation, which may affect the performance of cost-effective audits. If conducting audits is not cost-effective (i.e., the cost of complying with the standard’s requirements exceeds expected benefits), it may become a barrier in engaging auditors.
Similar issues in audits of less complex entities (LCEs) are experienced by practitioners worldwide. Consequently, the International Auditing and Assurance Standards Board (IAASB) has issued:
Over the last few years, the AASB’s main activities on this initiative included:
- conducting outreach activities on the challenges practitioners face when auditing LCEs;
- listening and contributing to international deliberations on this topic, including attending the 2017 and 2019 IAASB SMP/SME Working Conferences in Paris, France;
- monitoring the IAASB’s progress on this initiative, including providing feedback on the IAASB’s meeting agenda papers;
- seeking broad Canadian stakeholders’ input on the IAASB’s 2019 Discussion Paper and submitting a response letter shaped by that feedback;
- establishing the Audits of LCE Advisory Group to support the AASB in reviewing and responding to materials issued by the IAASB; and
- providing input on CPA Canada’s implementation guidance to help address the challenges in identifying and assessing risks while emphasizing the scalability of the standard with a focus on LCEs – Implementation Tool for Auditors, “ The Risk Assessment Process: Tips on Implementing Revised CAS 315.”
In 2021, the AASB issued a Discussion Paper, Exploring Standard-Setting Options for Audits of Less Complex Entities. We are seeking stakeholder responses to options that might be explored in Canada to address the challenge of applying the CASs to audits of LCEs, including whether to pursue a separate standard for audits of LCEs in Canada. With this Paper, we are also seeking input on the IAASB’s ED-ISA for LCE.
Canadian practitioners are encouraged to follow the progress of this initiative and provide feedback as necessary.