For many auditors of smaller entities (small charities, clubs and companies, for example), a major difficulty is how to adhere to auditing standards which are designed primarily for larger entities.
Given the time and budget constraints that auditors face, this can cause some auditors to go into autopilot and tick off checklists rather than clearly identifying, assessing, and addressing audit risks.
We have identified these issues in previous articles, and although at a global level, work is being done to tackle this problem, we have designed a new series of audit templates specifically addressing this.
Our simplified templates for less complicated entities (previously called our LCE series)seek to reduce the compliance burden that the current ISAs create and to focus on what is relevant to smaller organisations.
This is achieved, in part, by referencing the suggested application material for small entities within the existing standards and leaving out the content that will only be relevant in larger entities (e.g. internal audit). We have also made some assumptions - the most significant is that controls will not be tested, as is common with smaller entities that have a level of transparency that enables substantive testing and lacks complex controls structures .
We aim to improve audit quality, evidence and documentation by reducing the number of pages and work items, and instead, we ask questions that prompt qualitative answers with solid evidence, rather than ticking “yes” or “no” answers. We have also tried to reduce the heavy and complex language of the standards to use brief, plain English wherever possible to ensure auditors can understand the true essence of the requirements laid out by ISAs.
Use of the Simplified series templates
While many standards have specific clauses for considerations for smaller entities, the standards do not define what “small entities” are. This is left to the auditor’s judgement.
We would suggest as a rule of thumb that in most cases in entities that are not reporting under IFRS, and have reasonably transparent processes and limited controls, will fit our Simplified templates. Those with complex operations or ownership structures, should probably stick to the full comprehensive ISA templates.
What key changes are included in the Simplified templates?
We conducted an in-depth update of the whole audit process incorporating an overall usability review and user suggestions.
Based on these changes the Simplified series incorporates the following;
- A narrative style that prompts descriptions and attachments of work performed to ensure that the auditor is documenting what they have done and why – designed to get the job done in a thorough but not over-the-top way.
- Complex and detailed points of the standards are summarised and deliberately made into plain English (we are assuming that the auditor has a good grasp of the standards, and will refer to the actual standards by hyperlink to XRB website if required).
- ISA application material has been chosen so that the template focuses on requirements that are the most applicable to small entities.
- Detailed compliance testing has been removed – templates assume a substantive-based approach, without reliance on systems testing (systems notes and basic walk-throughs are of course still required under the standards).
- Make the process more transparent by bringing important work “to the top”, removing duplication and streamlining workflow.
What auditing standards are not included?
- ISA 600 – Special Considerations – Audits of Group Financial Statements (limited mention)
- ISA 610 – Internal Auditor
- ISA 701 – Communicating Key Audit Matters in the Independent Auditor’s Report (limited mention)
- ISA 805 – Audits of Single Financial Statements and Specific Element, Account or Item of a Financial Statement
- ISA 800 – Reporting Considerations for Special Purpose Framework (no specific mention as the requirements are met by other standards)
Templates available
The following are available for use:
- Special Purpose Reporting Simplified Audit (2023) - basic audit template
- Tier 3 NFP Simplified Audit (2024) - basic template with checklists for NZ Tier 3 NFP and includes service performance audit standard NZ AS1 (Revised)
- Tier 4 NFP Simplified Audit (2024) - basic template with checklists for NZ Tier 4 NFP and includes service performance audit standard NZ AS1 (Revised)
- CAANZ SPFR for FPE Simplified Audit (2023) - basic template with checklists for CAANZ SPFR for FPE reporting standard
Note - jobs can be switched from existing non-simplified series templates, but we recommend that this is only done after the annual rollover to avoid loss of work as there are some common pages many are obviously different or have been removed.