20 July 2007 
 
A discussion paper jointly released by the Institute of Chartered Accountants in Australia, CPA Australia and the National Institute of Accountants, has revealed opposition among leading figures in business and government, to the development of a different set of auditing standards for small and medium enterprises (SMEs).  
 
The discussion paper outlines the general consensus that was reached on keys issues relating to the audit of SMEs, at a forum co-hosted by the professional bodies earlier this year.  
 
The forum was attended by 32 leading figures from the accounting and business profession, regulators, standard setters and academics and was successfully hosted by the professional bodies to facilitate discussions on the issue of differential auditing standards. 
 
The Institute’s Head of Audit, Andrew Stringer said the increased obligations on auditors are a result from the cumulative effect of changes to standards over the last five years, the on-going impact of CLERP 9 amendments to the Corporations Act that brought in new auditor independence requirements and the auditor inspection regime conducted by the Australian Securities and Investment Commission.  
 
“Despite the many factors adding to the time auditors are spending on audit tasks, stakeholders in audits of SMEs believe the development of a different set of auditing standards for SMEs is neither desirable nor feasible,” he said. 
 
“The Institute has long advocated for the reduction of regulatory burdens on SMEs and has explored alternative models appropriate to SMEs through various discussion papers and events”. 
 
“Following consultation with the government, the Institute is pleased that Treasury has acknowledged the issues facing SMEs and acted on a number of our concerns raised during consultations, including the raising of the size test thresholds of those entities required to have an audit ,” Mr Stringer said. 
 
CPA Australia’s Policy Adviser, Jessie Wong commented that it is important not to underestimate the value of an annual audit when considering a separate assurance model, or disregard the needs of other users of financial statements. 
 
“The introduction of an alternative service for SMEs has the potential to cause confusion in the marketplace and if not thought through adequately, an unwanted reduction in the quality of financial information. Other users of financial statements such as shareholders, employees and credit providers, would be substantially disadvantaged should this result,” Ms Wong said. 
 
“Annual audits have a positive impact on corporate governance and play an important part in keeping entities accountable. It is the view of CPA Australia and those present at the forum that audits should continue to be performed on SMEs,” she said. 
 
NIA policy adviser Tom Ravlic said constituents are staying within the comfort of the current assurance model because the general community has an understanding of the concept of audit. “It is clear in people’s minds as to what audit signifies. Moving away from the current, conventional model would create unnecessary confusion and make communicating different levels of assurance difficult,” he said. 
 
Key areas of agreement outlined in the discussion paper include, that:

• The cumulative effect of changes to auditing standards since 2002 has been significant, affecting the audit approach, documentation and costs
• There is a need to increase the size thresholds that determine which companies are required to have an annual audit
• The financial reporting framework, as it applies to SMEs has contributed to the difficulties being experienced by SMEs and their auditors, and that simplification of the framework is desirable
• Introducing a different assurance model would create confusion and increase the expectation gap. The public interest is best served by maintaining the status quo
• There is need for more guidance around audits of SMEs.