Page 1 | Confidential and Proprietary Information SME / SMP ISSUES Presented by Don Thomson IESBA Board Meeting Dublin, Ireland February 2012
Page 2 | Confidential and Proprietary Information Public interest in addressing SME issues Input on SME & SMP issues from around the world –Working group, SMP Committee, SMP Forum, standard-setters, others Preparation of accounting records & financial statements for audit & review clients that are SMEs –Common practice in many jurisdictions –Widespread confusion about the Code's guidance –Many do not clearly understand whether their services are compliant Issue is relevant to more than just SMEs & SMPs –Primarily audit & review clients that are not PIEs ( ) Background SME / SMP ISSUES
Page 3 | Confidential and Proprietary Information Self-review threat when auditor provides these services Management responsible for financial statements Dialogue between auditor & management appropriate –Application of accounting standards, methods used, journal entries, etc –Account reconciliation problems, technical advice on accounting, etc Audit clients that are not PIEs – routine or mechanical, e.g. –Recording transactions when client has determined or approved account –Posting client-approved entries to trial balance –Preparing financial statements based on information in the trial balance Does client involvement make services mechanical? –Is complex transaction mechanical if client approves account classification Preparing accounting records & financial statements SME / SMP ISSUES
Page 4 | Confidential and Proprietary Information Be satisfied that management is responsible –Making the significant judgments & decisions that are their responsibility –Evaluating the results of the service –Accepting responsibility for the actions to be taken arising from the results Risk is further reduced when the auditor gives the client the opportunity to make judgments & decisions based on an objective & transparent analysis & presentation of the issues –In a separate sub-section from accounting service guidance –Not readily apparent to many seeking accounting service guidance –Importance not clearly understood Avoid risk of assuming management responsibility SME / SMP ISSUES
Page 5 | Confidential and Proprietary Information Approve project in principle & subject to a formal proposal to clarify –The guidance in the Code dealing with the preparation of accounting records & financial statements –The importance of giving an audit or review client the opportunity to make judgments & decisions based on an objective & transparent analysis & presentation of the issues Public interest –Understanding, consistent interpretation & compliance with the Code –Clarity of the Code, rather than interpretive guidance outside the Code –A robust Code, rigorously applied Clarification may facilitate Code's acceptance & adoption Proposed action SME / SMP ISSUES