IAASB publishes International Standard on Auditing for Audits of Financial Statements of Less Complex Entities

The International Auditing and Assurance Standards Board (IAASB) published a new standard on 6 December 2023 for Audits of Financial Statements of Less Complex Entities, effective for periods on or after 15 December 2025.

The new standard is designed specifically for audits of less complex entities and whilst based on the underlying concepts from the International Standards on Auditing, the requirements are proportionate to the nature and circumstances of LCEs without compromising on audit quality. It is not necessarily a reduction in the amount of work needed to complete an audit, rather a different approach to how it is done.

An overview of the new standard was explored in our previous blog as well as an in depth look at how it might work in practice.

How does this affect the UK?

The FRC issued a response to the exposure draft in April 2023 wherein it concluded that there are insufficient grounds for adoption in the UK. The UK currently has small company exemptions to address the burden on small and less complex entities, with these covering a large proportion of the entities which would fall into the scope of the ISA for LCE.

The FRC also addressed the amendments to include less complex group audits within the scope of the ISA for LCE, however it noted that this would not change its view that UK-adoption would not be appropriate.

How can Mercia help?

Although the FRC has indicated that it will not be adopting the new standard in the UK, there has been no formal decision announced at the time of writing. We will continue to monitor the situation and keep you up-to-date on the blogs section of our website, where you can also find other helpful articles across a range of topics.