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Audits of less complex entities – Phase II [ED]

The comment period ends on December 10, 2021 to the AASB and January 31, 2022 to the IAASB

Next steps:

The AASB and IAASB will review feedback it receives on its exposure drafts

Last up­dated:

September 2021

Overview

On April 29, 2019, the In­ter­na­tional Au­dit­ing and As­sur­ance Stan­dards Board (IAASB) pub­lished a Dis­cus­sion Pa­perAu­dits of Less Com­plex En­ti­ties: Ex­plor­ing Pos­si­ble Op­tions to Ad­dress the Chal­lenges in Ap­ply­ing the In­ter­na­tional Stan­dards on Au­dit­ing (ISAs). The purpose of the IAASB was to fur­ther un­der­stand the chal­lenges of us­ing ISAs in au­dits of less com­plex en­ti­ties (LCEs) —and views about pos­si­ble ac­tions to ad­dress these chal­lenges.  For the initial stage of this project see - Audits of less complex entities – Phase I [Completed]

Following a review of the responses by stakeholders and a discussion with its Task Force, at its meeting on December 7-11, 2020, the IAASB concluded that the appropriate next step (Phase II) was to develop a separate standard for audits of the financial statements of LCEs.

On December 15, 2020, the IAASB published a new communique detailing plans for the new standard, including current thinking on what the standard will look like, what entities it will apply to, and the development timeline.

At the June 22/23, 2020 meeting of the AASOC, Mr. Eric Turner, Director of the AASB noted the following with respect to this project: (i) the audit of LCEs is a key initiative for the AASB; (ii) at its June 2020 meeting, the IAASB sought input from its members to allow it to proceed with the development of a separate standard for LCEs. It also set out principles to abide by in development of this standard. The AASB had a robust discussion of these principles and did not support the IAASB’s direction for this project, that is to say the AASB does not endorse a separate standard as the preferred solution. It believes that the most effective and timely solution to address the key issues respondents identified in the IAASB’s Discussion Paper is to make limited revisions to the ISAs or develop non-authoritative guidance. It believes that complexity cannot be defined at an entity level, but rather it is related to a particular area of a business’ operations or its financial statements; (iii) unlike the ISAs, each jurisdiction will need to decide whether or not to adopt this separate LCE standard, that is to say the AASB could decide that Canada will not adopt the separate LCE standard or restrict its use in Canada; and (iv)  the separate standard for LCEs will not be applicable for the audits of listed entities as the IAASB believes that only the ISAs would meet the public interest in this case. The IAASB will also consider further limitations to the use of the separate standard for LCEs as the project proceeds.

 

Other De­vel­op­ments

September 2021

On September 10, 2021, 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 CASs to audits of less complex entities. Comments are requested by December 10, 2021.

July 2021

On July 23, 2021, the IAASB published an exposure draft of its new, stand-alone standard for audits of financial statements of less complex entities. Comments are requested by January 31, 2022.

December 2020

On December 15, 2020, the IAASB published a new communique detailing plans for the new standard, including current thinking on what the standard will look like, what entities it will apply to, and the development timeline.

 

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