IRBA: Decision not to adopt ISA for LCE

IRBA: Decision not to adopt ISA for LCE

• 11 November 2024
• Auditing and Assurance
• South African Accounting Academy

Summary:

The Independent Regulatory Board for Auditors (IRBA) Board approved a decision not to adopt, issue or prescribe the ISA for Audits of Financial Statements of Less Complex Entities (LCE) (ISA for LCE).

Article:

This decision was approved on 29 October 2024, and published on 7 November 2024.

Prior to this decision, the IRBA, through its CFAS, undertook an extensive analysis, which included seeking views from various stakeholders, to assess the possible outcomes of adopting the ISA for LCE.

The feedback received highlighted several concerns/issues about the adoption of the ISA for LCE in South Africa, and those include the following:

• Limited Benefits: The ISA for LCE does not significantly differ from the existing ISAs and does not offer substantial benefits in terms of efficiency, audit quality or profitability for practitioners.
• Stakeholder Concerns: There is a potential for reduced audit quality, marketplace confusion and the expectation of reduced audit fees, without a corresponding decrease in work effort.
• Implementation Challenges: The complexity of the standard’s authority section and the lack of clear guidance on transitioning between standards poses significant challenges.
• Dual Methodologies: The need for dual methodologies, along with the associated investment in resources, time and capital to create multiple sets of templates, methodologies and education programmes for different standards is a concern.
• Two-tier Profession: Different tiers could emerge, with a split between audit firms/auditors that perform ISA audits and those that do LCE audits. This could impact the capabilities and career opportunities of auditors and staff who only perform LCE audits.
• Recruitment Challenges: There could be difficulties with recruiting trainees for audit firms that have a significant number of LCE audits, or an audit department dedicated to the audit of LCEs.

Click here to download the document:

https://www.irba.co.za/upload/48_%20ISA%20for%20LCE.pdf

Relevance to Auditors, Independent Reviewers & Accountants:

• As an auditor and independent reviewer, you need to comply with International Standards on Auditing and other Assurance Services, and thus you need knowledge of newly revised standards that are approved as well as when they become effective.
• Failure to adhere to ISAs may be interpreted as negligence and you could be held liable.
• Registered Auditors must be aware of international standards that are not adopted in South Africa.

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