ACCA welcomes the opportunity to respond to the FRC’s Small and medium-sized enterprises market study. During the consultation period we held a hybrid roundtable discussion with a range of members and stakeholders including representatives from the FRC at our London office to hear more about the invitation to comment and enable members to share their views.

We commend the FRC for its initiative to address the challenges faced by both SMEs and auditors conducting SME audits in UK. ACCA is strong proponent of globally consistent standards with regard to both corporate reporting and audit and assurance. Accordingly, we believe that it would be valuable and in the public interest for the FRC, as part of its focus on SMEs and audit, to set out clearly the basis for its decision not to adopt the IAASB’s International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE), its proposed alternative arrangements, and to allow stakeholders to provide their feedback once it has developed firm proposals in this area on which it wishes to consult.

In general, we consider that the focus should be on complexity rather than size given that an entity may be large in size but still be less complex. By focusing on complexity rather than just size, any initiatives by the FRC to address the scalability issues with the UK ISAs will be likely to help a much larger number of firms and practitioners.
ACCA firmly believes that audit plays a very important role in enhancing shareholders’ confidence with regards to a company’s financial position and trust with respect of its management and this includes SMEs.
ACCA supports the FRC in their objective to address the challenges faced by both SMEs and Auditors and makes the following suggestions to the FRC:

• Explore ways in which to address the expectation gap within the UK audit market to ensure that the public, investors and SMEs better understand what auditors actually do.
• To undertake further research and work on the benefits of Audit for SMEs. Improved communication of the benefits of audit both by the FRC and by professional bodies, such as ACCA, remains crucial to supporting SMEs with better understanding the benefits associated with time and resource investment in audit.
• We believe the FRC should consider the proportionality of the UK ISAs and that further thought needs to be given to the scalability of some of the UK ISAs, to be proportionate or ‘fit for purpose’ for an SME audit.
• Consider undertaking additional focused research on the application of the ethical standard to SME activities and their audit and assurance arrangements. This could then potentially lead to the development of additional application guidance for the SME sector, depending upon the issues uncovered.

We find that addressing the points noted above can also have a positive effect with respect to the attractiveness and retention on talent in the audit profession.

To read the response in full, please download the consultation response document found on this page.