Most American accountants are surprised to learn that millions of SMEs around the world have statutory reporting and audit obligations. That's because the situation in the U.S. is so different. There are roughly 5 million limited-liability corporations and roughly 15 million more partnerships, proprietorships and other forms of ownership.

By law, only a relative handful of those are required by law to publish U.S. GAAP financial statements, audited or unaudited – generally the 15,000 SEC registrants plus a few other regulated entities. Sometimes, lenders or contracts impose such requirements. But for the vast majority of American private companies, there is no requirement to prepare U.S. GAAP statements.

So, could private companies in the U.S. use IFRS for SMEs? There does not appear to be any reason why not – provided that the basis of presentation note clearly explains that the statements conform to IFRS for SMEs. If audited, the auditor would report on conformity with the IFRS for SMEs.

Summary of Recommendations on Choice in the UK Audit Market:

1. The FRC should promote wider understanding of the possible effects on audit choice of changes to audit firm ownership rules, subject to there being sufficient safeguards to protect auditor independence and audit quality.
2. Audit firms should disclose the financial results of their work on statutory audits and directly related services on a comparable basis.
3. In developing and implementing policy on auditor liability arrangements, regulators and legislators should seek to promote audit choice, subject to the overriding need to protect audit quality.
4. Regulatory organisations should encourage participation on standard setting bodies and committees by appropriate individuals from different sizes of audit firms.
5. The FRC should continue its efforts to promote understanding of audit quality and the firms and the FRC should promote greater transparency of the capabilities of individual firms.
6. The accounting profession should establish mechanisms to improve access by the incoming auditor to information relevant to the audit held by the outgoing auditor.
7. The FRC should provide independent guidance for audit committees and other market participants on considerations relevant to the use of firms from more than one audit network.
8. The FRC should amend the section of the Smith Guidance dealing with communications with shareholders to include a requirement for the provision of information relevant to the auditor selection decision.
9. When explaining auditor selection decisions, Boards should disclose any contractual obligations to appoint certain types of audit firms.
10. Investor groups, corporate representatives, auditors and the FRC should promote good practices for shareholder engagement on auditor appointments and re-appointments.
11. Authorities with responsibility for ethical standards for auditors should consider whether any rules could have a disproportionately adverse impact on auditor choice when compared to the benefits to auditor objectivity and independence.
12. The FRC should review the Independence section of the Smith Guidance to ensure that it is consistent with the relevant ethical standards for auditors.
13. Regulators should develop protocols for a more consistent response to audit firm issues based on their seriousness.
14. Every firm that audits public interest entities should comply with the provisions of a Combined Code-style best practice corporate governance guide or give a considered explanation.
15. Major public interest entities should consider the need to include the risk of the withdrawal of their auditor from the market in their risk evaluation and planning.