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Other Canadian Standards

Audits of Less Complex Entities

Summary

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:

Staff Contact(s)

Jacqui Kuypers, CPA, CA Principal, Auditing and Assurance Standards Board

Project Status

  • Information gathering

    Discussion Paper comment deadline was August 14, 2019

    AASB submitted its response to the IAASB’s Discussion Paper

    IAASB is deliberating feedback received on the Discussion Paper

  • Approving project
  • Consulting stakeholders

    The AASB issued its Discussion Paper, “Exploring Standard-Setting Options for Audits of Less Complex Entities,” in September 2021

  • Deliberating feedback

    The AASB is deliberating feedback received on its Discussion Paper. The AASB issued a progress report.

    The IAASB is deliberating feedback received on its Exposure Draft.

  • Final pronouncement

AASB response to the IAASB Exposure Draft, Proposed International Standard on Auditing of Financial Statements of Less Complex Entities

Our response letter highlights our concerns with the proposed standard. 

News


March 6, 2023 International Activity
IAASB Issues Exposure Draft of Proposed Part 10, Audits of Group Financial Statements of the ISA of Less Complex Entities

The International Auditing and Assurance Standards Board (IAASB) issued its Exposure Draft of Proposed Part 10, Audits of Group Financial Statements, of the Proposed International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE). The Exposure Draft aims to include certain group audits within the scope of the proposed ISA for LCE. Submit your comments on the IAASB’s Exposure Draft by May 2, 2023, and provide a copy of your response to the AASB at [email protected]

September 10, 2021 Document for Comment
AASB Discussion Paper – Exploring Standard-Setting Options for Audits of Less Complex Entities

The AASB issued a Discussion Paper to obtain stakeholder input on options that might be explored in Canada to address the challenge of applying the Canadian Auditing Standards (CASs) to audits of less complex entities. Submit your comments by December 10, 2021!

September 1, 2021 International Activity
IAASB Exposure Draft – Audits of Less Complex Entities

The IAASB issued an Exposure Draft proposing a new standard on auditing the financial statements of less complex entities (LCEs). On September 10, 2021, the AASB will release a discussion paper that explores whether to pursue a separate standard for audits of LCEs in Canada and other options to address the challenges practitioners face in LCE audits. Read the IAASB Exposure Draft and stay tuned for our Canadian discussion paper!

Meeting & event summaries


December 13, 2022 AASB Decision Summary – November 28-29, 2022

The AASB discussed issues related to the IAASB’s project to develop a separate standard for audits of less complex entities (LCEs). Key issues included:

  • the proposed revisions to Part 6 of the draft International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE) dealing with risk identification and assessment;
  • the proposed Part 10 of ISA for LCE and proposed revisions to the Authority of ISA for LCE dealing with group audits;
  • how the AASB will respond to the IAASB’s exposure draft of Part 10; and
  • the possible activities the Board may undertake in its 2023-2024 Annual Plan as it works towards a solution for LCEs.

The AASB will continue to discuss future activities as it develops its 2023-2024 Annual Plan.

October 3, 2022 AASB Decision Summary – September 8-9 2022

The AASB discussed issues related to the IAASB’s project to develop a separate standard for audits of less complex entities (LCEs). Key issues included:

  • the Authority of proposed ISA for LCE, including the content and presentation of the qualitative characteristics of a typical LCE;
  • whether to incorporate accounting estimates that are more complex in the ISA for LCE, and if so, how;
  • proposed changes to the Authority to allow less complex group audits to be performed using ISA for LCE, including how to address the use of component auditors; and
  • how to revise requirements to be more proportionate to audits of LCEs.

June 27, 2022 AASB Decision Summary – June 6-7 2022

The AASB discussed issues related to the IAASB’s project to develop a standard for audits of less complex entities (LCE). Key issues discussed included:

  • the Authority of the standard, including:
    • whether the IAASB should describe what an LCE is, rather than setting out characteristics of entities that would not use the standard;
    • whether the IAASB should require or encourage jurisdictions to establish quantitative thresholds (i.e., size tests to determine if an entity is an LCE);
  • how requirements in the draft LCE standard could be rewritten to be more principles-based, and whether such changes would result in increased efficiencies in an LCE audit;
  • the IAASB’s approach to including essential explanatory material in the LCE standard; and
  • whether the IAASB has addressed the significant concerns and barriers to having a separate standard that provides reasonable assurance that several respondents to the IAASB’s Exposure Draft raised.

The AASB also discussed next steps in Canada, including additional research on Canadian issues that staff proposes to undertake.

Disclaimer

This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.