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Comments from ACCA
0April 2007

ACCA is pleased to comment on the Consultation Papers:

• The need for guidance to aid the implementation of auditing standards on smaller entity audits

and

• Draft guidance on smaller entity audit documentation.

Our response takes the form of answers to the questions in the Consultation Papers (we have summarised the longer questions).

The need for guidance to aid the implementation of auditing standards on smaller entity audits

Q1. Do you think that it is appropriate for the APB to withdraw Practice Note 13 following this consultation?

Yes. The developments listed in paragraph 8 of the Consultation Paper argue strongly for this.

Q2. Do you think that additional guidance should be issued to assist auditors of small entities in understanding the requirements of ISAs (UK and Ireland)?

Q3. If yes, who do you think should be issuing such guidance?

We welcome the Draft Guidance on Smaller Entity Audit Documentation. We do not believe that additional guidance is now necessary from the APB.

The issue of this authoritative guidance resolves the reported differences in view as to the extent of documentation, and hence the nature of the underlying audit procedures. This will allow firms and those who supply training and 'audit systems' to respond appropriately.

Draft guidance on smaller entity audit documentation

Q1. Does the Consultation Draft provide helpful guidance? If not, how could it be improved?

ACCA welcomes the publication of the draft guidance on smaller entity audit documentation. It is important that auditors of smaller entities have access to authoritative guidance as, currently, ISAs ( UK and Ireland ) have been found to be disproportionately costly when implemented for such audits. Documentation is important in an audit and, through guidance that demonstrates how documentation may be produced in a concise yet effective manner, the APB is encouraging auditors to think about the underlying approach and to audit according to what is necessary rather than what is thought to be required in order to be seen to be complying with standards.

We find the guidance helpful and have no significant suggestions as to how it could be improved.

Q2. Are there any other aspects of smaller entity audits where it would be beneficial to develop guidance to assist with effective implementation of ISAs (UK and Ireland)?

We refer to our answer to question 2 in the Consultation Paper 'The need for guidance to aid the implementation of auditing standards on smaller entity audits'.

Depending on the demand from users, the APB be may wish to extend the draft guidance by the inclusion of further examples.

Q3. Is it clear to whom the guidance applies? Is there a need to limit its application?

We agree with the approach taken in paragraph 2 of the Consultation Draft, which explains the target of the guidance and describes others to whom the guidance may be helpful.

We did not believe that the application of the guidance needs to be limited. As guidance, it should be promoted so that those who might benefit from it are encouraged to use it. We do not believe that there is any significant risk of auditors of larger entities adopting this approach generally.

Q4. Is the status of the illustrative audit documentation clear?

The status of the illustrative audit documentation is unambiguous – it is even described as 'not mandatory' when the presumption would be that, because of the nature of the document, it could never be more than guidance. We see no reason why users should be confused as to its status.

Q5. Are the examples in the Appendix realistic? If not, what should be changed?

We find the examples realistic and helpful. There are some instances where the documentation implies that procedures are required by ISAs when they are not (for example, walk-through tests), but we recognise that the APB has chosen to presenting examples that are illustrative rather than consistently advocating the minimum documentation necessary. Because of this, it would be useful to mention in the introduction to the Appendix that the examples are not intended to set a minimum standard of documentation.

We welcome the fact that the free-form notes are presented to some extent as bullet points. Experience shows that substantial time can be wasted in documentation as writers strive for appropriate prose. We suggest that much more could be done to illustrate the economy of effort achievable with a bullet point approach and minimal wording. For example, 'The directors have confirmed that they will revalue the property this year for the first time. They have arranged for a valuation to be carried out by HBE Valuers.' Could be rendered as: 'first property revaluation planned using HBE Valuers'. As very significant savings in documentation can be made, we would be pleased to advise further on this point during the finalisation of the guidance.

If this suggestion is not accepted, we recommend that the introduction to the Appendix includes a statement that, while the examples use a prose construction, bullet points are an acceptable alternative and are generally more efficient.

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