New Practice Note for Auditing Small/Less Complex Entities

by | Nov 16, 2025 | Blog, News

The Chartered Accountants Ireland last month filed its response to the FRC consultation about the draft Practice Note on the Audit of Less Complex Entities.

The PN is basically the updated version of the much loved PN 26 Guidance on Smaller Entity Audit Documentation which was withdrawn in 2016. The latest version still has the same hotel/restaurant case study example (Bulls Restaurant and Hotel) but with updated references to the latest ISAs and the latest technology.

While the Institute supports the development of additional guidance in principle as small and medium-sized practices need to be able to apply the ISA proportionately to the scale of their audit clients. The Institute prefers that the FRC would focus on the IAASB standard called the International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE’), which is better customized for the needs or SME audit market.

Among other things, in its response, the Institute has called for:

  • Better alignment/mapping to the underlying ISAs, which would aid ease of reference when navigating the ISAs;
  • More guidance and examples on the calculation of performance materiality including how firms should document the rationale for calculations used and use of associated benchmarks to support calculation of performance materiality;
  • Enhancements to the PN such as examples regarding:
    • documentation of professional judgement;
    • further guidance and examples regarding scope of the PN, and
  • dealing with IT general controls (ITGCs) in an SME audit environment; and
  • examples need to be more innovative and not merely focus on straightforward circumstances to ensure they are useful in practice.

The Institute also calls for better coordination between the ISAs and the PN because as paragraph 4 of the PN states, the PN does not contain commentary on all the requirements in the ISAs and reading it should not be seen as an alternative to reading the relevant ISAs in their entirety.

Ultimately this means that SME auditors, inspectors, and software providers would still have to follow over 1,000 pages of the full ISAs and have regard to another 64 pages of the PN.

The response also draws attention to the fact that only nine ISAs are referenced in detail in the PN which could result in inconsistent interpretations and confusion when practitioners are performing SME audits. It would be more helpful for regulators also if there were better cross-referencing as to where requirements are not relevant or where requirements are scalable for SME audits in the form of a mapping document. This would remove the need for practitioners to review the entire series of ISAs when performing SME audits

For audit cold file reviews and tailored training sessions explaining more about various topics like AML, Audit, FRS 102, please send a mail to john@jmcc.ie.

For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:

ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements.  Please contact John McCarthy FCA by email at john@jmcc.ie.