Mats Olsson
     Mats Olsson, FAR SRS

The auditing and accounting business is undergoing rapid
changes. Countries that had statutory audit regardless of the size
of the entity have implemented thresholds and countries that
already had thresholds have raised them. Worldwide, fewer and fewer
companies are audited, despite the fact that audited financial
reports bring confidence and trustworthiness.

Several studies, including a recent one from the International
Federation of Accountants, have shown the accountant/auditor is the
most trusted and appreciated business adviser for SMEs. In my
opinion this relies on a confidence built up during a long period
of time.

By working closely with SMEs and keeping a
high regard to professional standards on ethics and independence as
well as a high level of competence, we have reached that number one
position.

No alternative

In the current debate on audit thresholds, it is hard to find
relevant and accepted assurance services to substitute for the
audit. Regarding the debate about abolishing audit, we have
ourselves to blame. When the ‘old ISAs’ were implemented some years
ago, we were not critical enough. Instead of taking responsibility
for public interest, we took the ISAs on and started digging our
own graves. In Sweden, representatives of trade associations even
publicly told the business world that now was the time for
increasing fees.

Lucky for us, we now have revised ISAs on the
way. With clarified, simplified and revised ISAs, we can bring
audit back to basics – an intellectual process with endless
opportunities for proportional approaches and tailor-made
solutions, while staying within the framework.

By focusing on a simpler structure for
documentation, the revised ISAs can make way for an audit that is
not only cost-efficient but enhanced in quality and in the same
time profitable for the auditor – a win-win situation.

I am not arguing for a statutory audit, but I
am worried that we risk losing the finest tool we have in our
tool-kit.

Many of my colleagues talk about assurance
services and compilations. We need to face the fact that a
compilation will never be something that in itself builds
credibility and trust. Those relying on a compilation will always
do so due to a misconception that the compiler ‘has a finger’ in
the quality and reliability of the financial report. With this
‘knowledge’, they trust the report.

Regarding assurance services as an alternative
to audit for SMEs, from what I understand, a professional who takes
on an assurance service has to perform certain agreed upon tasks.
If there are demands for more evidence, the assurance service can
very easily expand into a service more comprehensive and expensive
than an audit. And then what have we accomplished?

Abolishing audit and instead doing just light
assurance services could put us in a position where we risk
becoming one of many in the categories of consultants and
money-makers, and then we would probably no longer be the number
one adviser, nor be able to recruit the best students to the
profession.

In light of this, we should argue to reclaim
the audit of SMEs. We would gain public trust, remain profitable,
keep our position as the number one adviser and last but not least,
do good for the public interest.

A long and continuous relation with a client
is normally healthy for all parties and society as well. Benjamin
Franklin once said, ‘when you finish changing, you’re finished’. In
these times of financial turmoil, let us take on the revised ISAs
and change our own situation as well as the conditions for SMEs.

Mats Olsson is a board member of
Swedish institute FAR SRS and Sweden’s representative on the
Federation of European Accountants working party for SMEs and SMPs.
His thoughts in this article are his own as a
practitioner.

Sweden is expected to introduce an
exemption for SMEs from statutory audit during the new year
(
see Sweden prepares for momentous changes to accounting
landscape).