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IESBA SME/SMP WORKING GROUP REPORT

IESBA SME/SMP WORKING GROUP REPORT. Don Thomson. IESBA Board Meeting. New York, USA. October 17-19, 2011. IESBA – SME / SMP Issues. Topics for Discussion. Objectives Feedback & additional input Background Information sources Findings & recommendations Next steps.

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IESBA SME/SMP WORKING GROUP REPORT

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  1. IESBA SME/SMP WORKING GROUP REPORT Don Thomson IESBA Board Meeting New York, USA October 17-19, 2011

  2. IESBA – SME / SMP Issues Topics for Discussion • Objectives • Feedback & additional input • Background • Information sources • Findings & recommendations • Next steps

  3. IESBA – SME / SMP Issues Objectives • Present the Working Group's report • Identify & advise the Board • Unique & challenging issues faced by professional accountants in SMEs & SMPs complying with the Code • Public interest entity auditor independence excluded – outside the scope of this initiative

  4. IESBA – SME / SMP Issues Feedback & additional input • Consider various circumstances • Geographic location, size of entity, etc • Synopsis desirable • Be careful not to modify or replace Code • Informed management important safeguard • Will require explanation • Does not justify inappropriate services

  5. IESBA – SME / SMP Issues Feedback & additional input • Tax court & valuation services • Consider threat & adequacy of safeguards • Address threat, not location • Address sole practitioners' challenges • Inspection may be an effective safeguard • Consider the risk of corruption • Be careful to avoid double standards

  6. IESBA – SME / SMP Issues Background – SMEs • More than 98% of businesses are SMEs • Major impact on economic & social health • Common characteristics of SMEs • Limited number of users of audit/review reports • Dominant owner-manager, limited controls • Resource constraints (time, funds, people, etc) • Value advice & other non-assurance services

  7. IESBA – SME / SMP Issues Background – SMEs & SMPs • SMEs' professional accountants often SMPs • SMEs & SMPs not defined in the Code • No definition considered necessary for the findings & recommendations in the report • Working Group mandate is SMEs & SMPs • Not recommending that SMEs & SMPs be singled out for separate treatment • Singled out sole practitioners but other recommendations applicable to all • Public interest entity auditor issues excluded

  8. IESBA – SME / SMP Issues Information sources • Experienced Working Group members • Research • Consultation • SMP Committee, SMP Forum, SMP poll • National standard-setters • IESBA; IESBA Chair briefed CAG • Other individuals from various jurisdictions

  9. IESBA – SME / SMP Issues Knowledge & Understanding of the Code • Challenges • Length of the Code & resource constraints • Recommendations • Synopsis, Q&As, case studies, etc; align PD • Brief synopsis, threats & typical safeguards, hotlinks to relevant areas • Q&As may address threats to fundamental principles, informed management, etc • Packaging to facilitate ready access • Hotlinks • Possibly an interactive version that enables tailoring to focus on relevant sections

  10. IESBA – SME / SMP Issues Safeguards - Challenges • Intuitive approach to safeguards impeded • Importance of informed management unclear • Professional judgment may be discouraged • SMEs' ability to benefit from the knowledge of their professional accountant to obtain services in addition to audits/reviews may be unduly restricted if ignore circumstances • Often limited number of users, lower risk

  11. IESBA – SME / SMP Issues Safeguards - Recommendations • Consider clarifying importance of applying professional judgment to circumstances • Clarify importance of informed management • Consistent framework of safeguards • Enables a more intuitive approach • For audits of entities other than PIEs, consider consistency of valuation & tax advocacy prohibitions with the basic framework

  12. IESBA – SME / SMP Issues Safeguards – Sole Practitioners, Small SMPs • Challenge • Many safeguards not readily available • Recommendation • Develop guidance to help identify safeguards • Encourage consultation, etc • Consider informed management combined with exposure to inspection • May be restricted to lower risk engagements with additional communication

  13. IESBA – SME / SMP Issues Network Firm • Challenge • SMP alliances may be confused with the Code's concept of a network firm • Recommendation • Develop guidance on a network firm

  14. IESBA – SME / SMP Issues Future Expansion of the Code • Challenge • Code does not provide guidance on specific services other than on auditor & other assurance providers' independence • Opinions divided amongst those providing input as to whether this warrants action • Recommendation • When developing future workplans, consider expanding the Code to deal more specifically with non-assurance services, particularly tax

  15. IESBA – SME / SMP Issues Ongoing Consideration of SMEs & SMPs • Challenge • SME/SMP issues warrant continuing attention • Recommendations • Processes to always address SME/SMP issues • Qualified nominations for Board (& CAG?) • Cooperate closely with SMP Committee • Consider continuation of Working Group

  16. IESBA – SME / SMP Issues Next Steps • Board &/or Planning Committee • Consider appropriate action arising from the recommendations in this report

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