International Federation of Accountants ADDRESSING THE NEEDS OF SMP IN THE DEVELOPMENT OF IAASB PRONOUNCEMENTS

1. International Federation of Accountants ADDRESSING THE NEEDS OF SMP IN THE DEVELOPMENT OF IAASB PRONOUNCEMENTS Jan Tyl, IAASB Technical Manager IFAC SMP/SME and Developing Nations Consultative Conference Prague, March 10-11, 2005

2. Defining the Context Int’l. Fed. of Accountants • Small and medium-sized practice (SMP) definition - IFAC • Small and medium-sized entity (SME) definitions • the European Union • IFC • Czech Republic • USA • IAASB

3. SMP Permanent Task Force (SMP PTF) Int’l. Fed. of Accountants • SMP/SME in IFAC Strategic Plan • SMP Permanent Task Force • To directly work with standard-setters • To monitor IFAC committees work • To facilitate communication

4. SMP Permanent Task Force (SMP PTF) Int’l. Fed. of Accountants • IAASB liaison with SMP PTF • Composed of 15 members • Rapid Response Teams (up to 4 members) • Comments on standards and guidance – 10 since January 2004

5. SMP Permanent Task Force (SMP PTF) Int’l. Fed. of Accountants • Comments on proposed revised ISA 260 result in changes to the exposure draft • Proposed revised ISA 701 includes situations relevant for SMEs • Practice aids development

6. Applicability of ISAs to SMEs and SMPs Int’l. Fed. of Accountants • The Wong Report • Length and complexity of ISAs • Cost of compliance • Inconsistent application of standards • Lack of SMP/SME involvement in standard-setting • Focus on large entities

7. Developing Standards Applicable to Audits of All Entities Int’l. Fed. of Accountants • Clarity project • Requirements and presumptive requirements (shall and should) • Bold type lettering and present tense • Comments currently considered

8. Developing Standards Applicable to Audits of All Entities Int’l. Fed. of Accountants • International Auditing Practice Statement 1005 (IAPS) • Introduced in 1999, revised in 2003 • Not designed to substitute ISAs • ISA 240 and IAPS 1005 • Commentaries and considerations of SMP/SME issues

9. Int’l. Fed. of Accountants Developing Standards Applicable to Audits of All Entities • Is IAASB meeting its objective of one set of standards applicable to all entities? • Difficult to reconcile circumstances of large and small entities • Significance of the public interest

10. Int’l. Fed. of Accountants Developing Standards Applicable to Audits of All Entities • “An audit is an audit” • “Think-small-first” standard-setting • Consultative Advisory Group • SMP/SME participation on IAASB Task Forces • 2 IAASB members from SMPs • SMP participation impediments

11. Int’l. Fed. of Accountants Is Audit the Only Alternative for SMP/SMEs? • Do SME owners and SME accounts users need an audit? • Is audit a “stamp purchase?”

12. Int’l. Fed. of Accountants Is Audit the Only Alternative for SMP/SMEs? • What could replace audit? • Two levels of assurance • Canadian experience • British experience • IAASB study • Moderate assurance – ISRE 2400

13. Questions to Participants Int’l. Fed. of Accountants • What other steps should IAASB take to address the issues raised in the Wong Report? • Would a different level of assurance serve the public interest? • Are there other relevant questions?

14. International Federation of Accountants