ACCA urges FRC to drive ‘proportionate’ SME audit requirements

Global accountancy body The Association of Chartered Certified Accountants (ACCA), is calling on the UK regulator to ensure that audit requirements for SMEs are “proportionate”, aligning with prevailing international standards.

Responding to a consultation from the UK corporate governance regulator the Financial Reporting Council (FRC) Small and medium-sized enterprises market study, ACCA said the focus of the rules should be on the complexity of an entity rather than on size. 

While commending the FRC for addressing the challenges faced by SME auditors, Mike Suffield, director of Policy and Insights ACCA and formerly head of FRC’s Audit Quality Review team, has called on the FRC to disclose why it didn’t adopt IAASB’s ISA for LCE standards.

He said: “ACCA is a strong proponent of globally consistent standards with regard to both corporate reporting and audit and assurance. 

“We believe that it would be valuable and in the public interest for the FRC, as part of its focus on SMEs and audit, to set out clearly the basis for its decision not to adopt the IAASB’s International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE). The FRC should set out its proposed alternative arrangements and allow stakeholders to provide their feedback once it has developed firm proposals.”

ACCA said its response was informed by a roundtable with members and the FRC where auditors and users of audited accounts were able to express their views and discuss the challenges of SME audits. 

Glenn Collins, head of Technical and Strategic Engagement, ACCA, added: “The focus of standards should be on complexity rather than size given that an entity may be large in size but still be less complex. By focusing on complexity rather than just size, any initiatives by the FRC to address the scalability issues with the UK ISAs will be likely to help a much larger number of firms and practitioners.”

ACCA has also called on the FRC to take multiple actions to improve SME audits including:

• Ensuring stakeholders understand the purpose of SME audits in a bid to reduce the expectation gap;
• Working with others -including ACCA – to communicate the benefits of SME audits;
• Ensuring standards are scalable and fit for purpose
• Undertaking further work to see how SMEs can be clear that the benefit of an audit outweighs its cost.