IAASB offers global standard for auditing less complex entities

The International Auditing and Assurance Standards Board has unveiled a new standard for auditing smaller businesses and organizations.

The International Standard on Auditing for Audits of Financial Statements of Less Complex Entities, also known as ISA for LCE, builds on the foundation of the International Standards on Auditing, so audits performed using this standard promise to provide a similar level of “reasonable assurance” for eligible audits. However, it’s designed for smaller, less complex businesses and organizations. 

The standard takes effect for audits starting on or after Dec. 15, 2025 for jurisdictions that adopt or permit its use. 

“The ISA for LCE underscores the IAASB’s commitment to ensuring the credibility and reliability of financial reporting for entities of all sizes,” said IAASB chair Tom Seidenstein in a statement Wednesday. “By leveraging the International Standards on Auditing as our starting point, we are cultivating an environment where audits are performed in a globally consistent and high-quality way for the smallest entities. The IAASB’s actions seek to inspire greater confidence and contribute to the overall stability and trustworthiness of information in the external reporting ecosystem. We have also heard that this standard should provide an impetus for the evolution of auditing in developing economies. We now turn to each jurisdiction and their oversight authorities and regulators to decide whether to adopt the standard. We encourage practitioners and others to reach out to the authorities in their jurisdictions to advocate for the ISA for LCE’s adoption.”

Released alongside the ISA for LCE are a Basis for Conclusions, which describes the feedback received during a public consultation period, along with a high-level fact sheet, and a frequently asked questions document. Additional materials to help jurisdictions navigate adoption will be issued in 2024, including supplementary guidance, a fact sheet on adoption, and a first-time implementation guide. All the materials on the new standard can be accessed on the IAASB website here.

According to the frequently asked questions page, if the entity audited is a listed entity or an entity that has public interest characteristics, the standard cannot be used. However, it can be used to perform audits of group financial statements, if eligible. But the use of the ISA for LCE is prohibited for group audits when component auditors are involved, except when the component auditor’s involvement is limited to circumstances in which a physical presence is needed for a specific audit procedure for the group audit (such as attending a physical inventory count or physically inspecting assets or documents). 

The International Federation of Accountants, which is affiliated with the IAASB, supports the new standard. 

“IFAC has closely engaged with the IAASB throughout development of the ISA for LCE and provided extensive feedback on behalf of practitioners around the world,” said IFAC CEO Kevin Dancey in a statement Thursday. “Our support is driven by the importance of less complex entities to all economies and our consistent understanding of the urgent need for action at the global level to address the significant risk of fragmentation to the international standard-setting ecosystem due to national and regional initiatives.”

Now that the ISA for LCE has been issued, IFAC is encouraging its member organizations to adopt or advocate for adoption of the ISA for LCE in their jurisdictions or promote voluntary use of the standard.