International standards on review and compilation engagements need to be urgently revised to respond to changing market needs, according to a survey by the Federation of European Accountants (Fédération des Experts Comptables Européens – FEE).
The survey found a variety of approaches to the use of assurance and its alternatives in the EU.
The federation called for a “swift” response from the International Auditing and Assurance Standards Board (IAASB) to help limit national initiatives from going in different directions.
The majority of the alternative assurance or related services were developed for audit exempt entities.
The survey also found there has been an increase in audit exemption thresholds in a number of EU countries over the past few years.
This has intensified the need for alternative services for SMEs.
A report released by the Institute of Chartered Accountants in England and Wales backed FEE’s findings. The report, Alternatives to Audit, was released after a two year consultation on a new assurance service based on the IAASB’s idea of limited assurance.
It found there is a need for alternatives to audit to enhance the credibility of financial information and recommended there should be choice when it comes to how companies demonstrate the reliability of the information they present.
IAASB technical director James Gunn told The Accountant the board recognises there is a growing demand for alternatives to audit.
However, he noted the nature and extent of this demand varies across different national markets.
The board is currently in the process of revising its compilation and review standards. Exposure drafts are expected to be released in mid-2010.
Gunn says there are widely differing views on how to best create a set of services that provide an acceptable alternative to audit, so the project is quite challenging.
“At my last meeting with the National Standard Setters I looked at where some of the different jurisdictions were going with their assurance,” Gunn said.
“Some were calling for a higher level of work effort, some were calling for a lower level of work effort, some were calling for a closer proximity to an audit and some were calling for the changes to go further.
“It is difficult to prejudge where the board will come down in terms of its changes to the standards.”
Gunn said the changes will certainly provide practitioners with a better understanding of what level of assurance they should attempt to provide under a review.
“Helping practitioners understand what work effort is needed is going to have a big effect on cost,” he explained.
The board could possibly take a more radical approach and fundamentally change some of its positions within the revised standards.
“I can’t anticipate at this stage,” Gunn said.