Kansainvälisiä tilintarkastusalan standardeja sovelletaan eri maissa hyvin eri tavoin. Anne Adrain ICASista kertoo englanniksi, miten standardit ohjaavat englantilaisen tilintarkastajan työtä hänen tarkastaessaan pieniä ja keskisuuria toimeksiantoja.
Author: Anne Adrain, Head of Sustainability and Assurance, ICAS, the Institute of Chartered Accountants of Scotland
The adoption of international auditing standards in the UK
In the UK, the competent audit authority it is the Financial Reporting Council (FRC) that has the responsibility for issuing International Standards on Auditing (ISAs) (UK) based on the corresponding ISAs issued by the International Auditing and Assurance Standards Board (IAASB).
There is no alternative to following the full suite of ISAs (UK) for all UK company audits regardless of size and complexity.
Furthermore, the FRC has not adopted many of the other IAASB assurance standards for use in the UK (for example ISRS’s and ISRE’s) and therefore it is down to the individual professional body (such as ICAS) to produce guidance for their members who wish to apply any of these standards.
Current status of audit thresholds in the UK
The audit landscape in the UK has changed following successive increases in the small company audit thresholds. The most recent increase (to £10.2m turnover and £5.1m balance sheet total), following the implementation of the EU audit reforms, means that many small entities, previously subject to an audit, have dropped out of the audit regime completely.
At ICAS, we have received anecdotal information that some small entities have voluntarily continued to request an audit, perhaps to give greater confidence to lenders, or to give some reassurance to the owner/manager who may wish to sell the business at some point in the future.
However, that leaves a substantial proportion of small entities that are no longer subject to an audit, but that make a significant contribution to the UK and Scottish economies and whose stakeholders, including customers, suppliers and employees, seek some confirmation on the reliability of the entity’s financial statements.
To serve the needs of these stakeholders, ICAS members can undertake alternative assurance and accounting services for these entities depending upon client expectation and the nature of the engagement.
Alternative assurance and accounting services for small entities in the UK
ISRE 2400 – Engagements to review historical financial statements
The firm’s historical financial statements can be reviewed by an audit professional. The review differs from an audit e.g. in that the review provides a lower level of an assurance than the audit.
We are aware that some ICAS members conduct review engagements using ISRS 2400 when requested by their clients but do not believe that these numbers are significant. Subsequently, based on this apparent lack of demand, the ICAS has not produced any detailed guidance on the application of this standard.
ISRS 4400 – Engagements to perform agreed-upon procedures regarding financial information
Agreed-upon-procedures engagements focus on a specific area of work, e.g. a specific balance sheet item, which has been agreed with the entity in advance and therefore can be an alternative to a full audit engagement. It is commonly the source of reference in engagements undertaken to confirm grant claim submissions. However, the report produced by the accountant is one that presents factual findings and should state that the procedures undertaken do not constitute an audit nor is any assurance provided.
ISRS 4410 – Compilation engagements
A compilation engagement is one intended to assist management with the preparation and presentation of financial information of an entity in accordance with an applicable financial reporting framework, i.e. the preparation of the annual financial statements.
However, the need for anyone using this standard to comply with the IAASB’s quality control standards, ISQC1, and, in particular, the requirement to implement an engagement quality control process, imposes a disproportionate and costly burden on our members so it is not frequently used.
The FRC has not adopted these three alternative standards for the UK. Therefore the source of reference would be the international standards as issued by the IAASB and there is nothing to prevent ICAS members for undertaking engagements in accordance with those standards.
ICAS framework for the preparation of accounts
As mentioned earlier, the increased audit thresholds mean that many ICAS members’ small entity clients no longer need an audit. However, these clients still value the services of a professional accountant, and the confidence and credibility they obtain from having an independent third party sign an accountant’s report and attach it to the accounts. In response, ICAS has developed own guidance: ‘The ICAS framework for the preparation of accounts’. The guidance is targeted towards small and medium practices that mostly perform accounts preparation engagements and is described further below.
The guidance is a source of reference for ICAS members undertaking accounts preparation engagements providing templates on the form and content of any report issued in connection with the engagement and guiding them through the performance the engagement. It also clarifies to ICAS members what is expected of them when undertaking an accounts preparation engagement. It should not be used during an audit engagement as no assurance is provided nor is any opinion expressed on the financial statements.
Additionally, the guidance does not expect the same onerous compliance with the requirements of ISCQ1 as per the international standard on Compilation Engagements ISRS 4410.
UK Charity sector
One final observation about the services our members in the SME environment by ICAS members is that many of them act for charity clients. For this sector, the audit threshold is very low, income of £500,000 for Scottish charities and £1m in England & Wales.
Thus, many ICAS members may only retain their audit registration on the basis that they act for charity clients. As a result, the FRC, with input from the professional bodies, has produced Practice Note 11 which sets out how the ISAs should be applied to the charity sector.
Charities with income below the audit thresholds are subject to a less rigorous process than an audit in the form of an Independent Examination, which falls within the scope of a review engagement.
The UK charity regulators, and professional bodies, have produced their own guidance for accountants undertaking Independent Examination engagements within the charity sector.
Anne Adrain and ICAS
Anne Adrain is Head of Sustainability and Assurance with ICAS, the Institute of Chartered Accountants of Scotland.
ICAS is a professional body for more than 21,000 world class business men and women in the UK and in more than 100 countries around the world. It regulates the members and their firms and represents them on a wide range of issues in accountancy, finance and business and seeks to influence policy in the UK and globally, always acting in the public interest. ICAS, along with the other UK professional bodies, is regulated by the FRC.