SMP eNews: September 2013

The International Auditing and Assurance Standards Board (IAASB) has released proposals that could fundamentally transform the auditor's report, greatly enhancing its communicative value. The Exposure Draft (ED) proposes a new standard, International Standard on Auditing (ISA) 701, Communicating Key Audit Matters in the Independent Auditor’s Report, and a number of revisions to existing standards, including ISA 700, Forming an Opinion and Reporting on Financial Statements. While the proposals stand to significantly change the shape of auditor reporting for listed entities, the impact on unlisted entities is likely to be much smaller. Nevertheless, there are proposed requirements that apply to all audits. These are intended to help demonstrate the value of the audit and, furthermore, may improve service and promote engagement efficiency.

This article summarizes this impact and suggests how SMPs and small- and medium-sized entities (SMEs) can get involved to help ensure the best possible outcome. Read Full Article  

The IAASB believes that the proposed ISAs can be implemented in a manner proportionate to the size and complexity of an entity and welcomes the views of both preparers and auditors of financial statements of unlisted entities, including SMEs, in this regard. The IFAC SMP Committee has been providing regular and robust input to the IAASB throughout the ED's development, starting with a response letter to the Invitation to Comment, and encourages SMPs to comment: Submit a comment. Comments are due by November 22, 2013. Please also join the discussion in the IFAC SMP Community on LinkedIn.

The mid-year IFAC SMP Quick Poll showed that the vast majority (73%) of the nearly 4,000 SMPs surveyed are either currently providing or have plans to provide sustainability services to their clients, suggesting that there’s a sizeable market for these services among the small businesses that SMPs typically serve. Of those who offer sustainability services, many offer more than one service; the most common service provided, indicated by over 75% of respondents, is advisory services. Reporting and assurance are the next most commonly provided services. Read more in the IFAC SMP Quick Poll: Mid-Year 2013. Due to different response rates in different geographic areas, results may not be statistically representative of global or regional populations of SMPs. IFAC wishes to thank the many member and regional organizations that helped with translation and distribution of the poll.

In November, IFAC will open the year-end SMP Quick Poll to find out if business performance met expectations and to check in on the current challenges facing SMPs and their clients, among other topics. To see the complete results of the last poll and participate in the next one, see the SMP Committee home page.

The International Auditing and Assurance Standards Board (IAASB) recently released The Clarified ISAs—Findings from the Post-Implementation Review. This report summarizes feedback and the main themes that have emerged, and will be an important input to the IAASB’s future planning process, including its 2015–2019 strategy deliberations, which are included on the agenda for their meeting later this month in New York. (See their Meeting Page for agenda papers and to register to attend as an observer.)

The report included a summary of responses from a survey of SMPs on the application of the clarified ISAs. Seventy SMPs from ten jurisdictions responded to the survey, which covered two audit cycles. The survey found that the introduction of the clarified ISAs had a positive impact on their work, in particular in relation to audit planning, quality control, and an improved focus on risk. Views on the proportionality of the ISAs varied, and roughly half of the survey respondents did not believe that further changes to the ISAs were necessary. 

The SMP Committee continues to monitor and provide input to the International Ethics Standards Board for Accountants (IESBA, the Ethics Board). At the last Ethics Board meeting in June, the board considered, among other things, a proposed alternative to the approach set out in the Exposure Draft, Responding to a Suspected Illegal Act, regarding a professional accountant’s responsibilities when encountering a suspected illegal act.

In addition, the IESBA approved the terms of reference for the working group formed to advise the board on ways to improve the usability of the Code, which could include changing the structure and/or presentation of the Code. The project responds to concerns from SMPs and others regarding the Code’s readability, understandability, and accessibility.

The IESBA will continue its deliberation on responding to a suspected illegal act and receive an update on the working group’s research at its September 2013 meeting. For additional meeting highlights, listen to the podcast summary or read the summary on the IESBA Meeting Page. See also the IESBA’s recently released 2012 Annual Report, Connecting and Engaging with Our Global Stakeholders.

The International Accounting Standards Board (IASB) has finalized its deliberations around its comprehensive review of the International Financial Reporting Standard for Small- and Medium-Sized Entities (IFRS for SMEs). At its July meeting, the IASB agreed that due process had been followed in developing the proposed amendments and an Exposure Draft (ED) is planned for publication in September. See a summary of decisions in the July IASB Update. The SMP Committee is likely to lead the drafting of IFAC’s response to the ED.

In the United States, the American Institute of CPAs (AICPA) introduced a new accounting framework for SMEs in June. The Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs) provides a new accounting option for preparing streamlined, relevant financial statements for privately held, owner-managed businesses that are not required to use US Generally Accepted Accounting Principles (GAAP).

The SMP Committee contributed to IFAC’s response to the Consultation Draft on the International Integrated Reporting Framework. IFAC strongly supports the principles-based approach presented in the draft Framework and notes that taking this approach is more likely to result in a Framework that will be capable of application in a manner proportionate with the size of an entity. See the Consultation Draft on the International Integrated Reporting Council (IIRC)’s website. 

Globalization is not a new phenomenon, but what is new is both its velocity and how it affects small- and medium-sized entities (SMEs). The impact on SMEs has significant implications for the accounting practices, in particular SMPs, that typically serve SMEs. According to the Edinburgh Group (EG)’s recently published report, Growing the Global Economy through SMEs, SMPs may need to carefully critique the services they provide to SMEs seeking to internationalize. As a starting point, the report suggests specific actions for SMPs that include developing more understanding and expertise internally, strengthening relationships with funding institutions, and building international networks of trusted professional and business contacts. SMPs have the potential to become a key agent for the internationalization of small business if they are able to provide SMEs with the advice they need.

Read More

The above article, 7 Tips for Accountants on Supporting the Globalization of Small Business, is available for publication by IFAC member organizations. It can also be tailored to suit the needs of your organization and membership. This article, and previously released articles, are available on the IFAC Extranet (under Resources, see Member Bodies—Articles for Member Body Publication). If you plan to reproduce or adapt an article, email communications@ifac.org with publication details, including the title, when and where you plan to publish, and any changes tracked for our review. Email permissions@ifac.org for permission to translate.

In “Global Insights from IFAC SMP Committee,” at CReCER in Cartagena, Colombia (August 2013), SMP Committee Chair Giancarlo Attolini spoke about the importance of SMEs and SMPs and the challenges they face, citing the results of the latest IFAC SMP Quick Poll, and the role of IFAC SMP Committee, including the committee’s implementation guides.

Over 175 delegates from 33 professional accountancy organizations in 30 countries met in Kampala, Uganda, for the seventh annual IFAC SMP Forum in June. Co-hosted with the Institute of Certified Public Accountants of Uganda (ICPAU) and the Pan African Federation of Accountants (PAFA), delegates convened to learn, debate, and collaborate on a global stage regarding the unique opportunities and challenges facing SMPs and their small- and medium-sized entity (SME) clients. The agenda, presentations, and photos are available on online.

IFAC co-hosted a complementary event with ICPAU and PAFA. See Tips for Trainers on ISAs—International Perspectives, Local Insights  to learn more and view presentations.  

The SMP Committee has commissioned the Canadian Institute of Chartered Accountants (CICA) to develop a new publication that will help IFAC member organizations support their SMP constituents with the implementation of the revised International Standard on Review Engagements (ISRE) 2400, Engagements to Review Historical Financial Statements. The publication, which will supplement the committee’s existing implementation guides by assisting SMPs in efficient and effective implementation of ISRE 2400, is expected to be released in late 2013. The guide will include comprehensive and concise guidance, illustrations including practical examples and/or specimen documentation, and appendices with key checklists and forms.

The next World Congress of Accountants (WCOA) will be hosted by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili (CNDCEC) in Rome, Italy, in 2014. Themed 2020 Vision: Learning from the Past, Building the Future, the 2014 WCOA will be held November 10-13 at the Auditorium Parco della Musica. More than 4,000 professionals from all over the world will convene at this can’t-miss IFAC event, held every four years. WCOA 2014 will look back to explore the evolution of the accountancy profession and forward to showcase the innovations that will set the tone for the future.

The WCOA also affords an unparalleled opportunity for organizations and firms to share their projects and visions with the world by taking advantage of one of our carefully crafted sponsorship packages. There are numerous options so you’ll be able to select the one that best suits your organization’s unique strategy and goals.