ISA for Less Complex Entities
The International Auditing and Assurance Standards Board (IAASB) has issued a new auditing standard: the International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE). This standard has been developed specifically for audits of entities with less complex operations and structures, while maintaining the same level of reasonable assurance as traditional International Standards on Auditing (ISAs).
The standard is intended to address concerns that the full ISA framework can be disproportionately complex for straightforward audit engagements, particularly those involving owner-managed and small-to-medium-sized entities.
What Is ISA for LCE?
ISA for LCE is a stand-alone auditing standard, not a simplified version of existing ISAs. It is designed to be:
- Proportionate to the nature and risks of less complex entities
- Easier to understand and apply
- Focused on audit areas most relevant to SMEs
Importantly, audits performed under ISA for LCE still provide reasonable assurance, meaning audit quality and reliability are not reduced.
Which Entities May Qualify?
Eligibility is based on the nature and complexity of the entity, rather than size alone.
Entities that may qualify typically have:
- Simple business models and revenue streams
- Straightforward accounting and financial reporting
- Limited internal controls but clear governance
- No complex group structures
Entities that would not qualify generally include:
- Listed companies and public-interest entities
- Banks, insurers, and other regulated financial institutions
- Entities with complex group arrangements or significant overseas operations
- Entities restricted by law or regulation from using ISA for LCE
Position in Malta
Currently, statutory audits in Malta must be conducted in accordance with International Standards on Auditing (ISAs) as adopted under EU and local legislation.
The use of ISA for LCE in Malta will depend on:
- Regulatory acceptance or adoption by Maltese authorities
- Any local guidance issued by the Accountancy Board or professional bodies
- Alignment with EU statutory audit requirements
Until formally permitted, ISA for LCE cannot replace full ISAs for statutory audits.
What This Means for Audit Clients
If ISA for LCE is adopted or permitted in Malta in the future:
- Eligible entities may benefit from a more tailored and efficient audit approach
- Audit work will remain robust but better aligned with the entity’s risk profile
- There may be reduced administrative burden without compromising audit assurance
For further information or guidance, feel free to reach out to our Audit and Assurance team.
Ian Mercieca
Partner
Pauline Calleja
Audit Manager
Hailey Cachia Hayman
Audit Manager
Emeline Bezzina
Audit Assistant Manager
