Challenges and Opportunities for SMPs: Audit of SMEs and Reporting of NFI by SMEs
Bakú – Azerbaijan, 11 October 2019 - Salvador Marín, President of EFAA, participated in the VI Eurasian Forum of Accountants and Auditors 2019, organized by EFAA’s Azerbaijani member APFM led by Nuriyya Novruzova, the chairman.
Marin led the session about Audit of SMEs and Reporting of NFI by SMEs. In his keynote presentation, the President highlighted, among other things, highlights of the Survey on Assurance for SMEs carried out by EFAA that culminated in the report 'Evidence on the Value of Audit for SMEs in Europe: Perspectives of Owner-Managers, Company Accountants and Directors' issued in May 2019.
The aim of this survey was to investigate views of SMEs on audit and assurance. It was asked what the benefits to the company are from having the accounts audited - Marin noted that “46.9% of respondents said that audit provides a check on accounting systems and records, 39.1% that the auditor provides useful advice to management and 37,1% .that it improves internal control. Somewhat surprisingly only 29% of respondents said that audit improves the quality of the financial information and 26.2% that audit gives assurance to external providers of finance”
Marin went on to stress the urgent need for changes to the auditing standards used by SMPs in the audit of SMEs and less complex entities (LCEs): “EFAA has submitted a robust response to the IAASB’s Discussion Paper (DP), Audits of Less Complex Entities: Exploring Possible Options to Address the Challenges in Applying the ISAs urging the Board to develop a new stand-alone audit standard for SMEs / LCEs”. The EFAA response also encourages the Board to expedite this project and indicate sooner rather than later the proposed way forward and says that “ if the IAASB decides to pursue this course of action, then it is vital that the communications around the new separate standard stress that this standard supports an audit of equivalent quality to an audit performed using the ISAs. Every effort needs to be taken to avoid giving the impression that the standard is less rigorous than the ISAs, rather it is a standard tailored to fit a different type of entity”
Regarding the reporting of non-financial information (NFI) by SMEs, Marín shared the key findings from an EFAA survey report issued in late 2018 - Survey of Non-Financial Reporting Requirements for SMEs in Europe which was the subject of roundtable discussion hosted by EFAA in February 2019.
It has been observed that “there is an increasing interest in non-financial performance driving emergence of NFR”. Marín explained that while the Non-Financial Reporting Directive (NFRD) only applies to large public-interest companies with more than 500 employees s one countries have widened the scope to smaller companies and the existence of supply chain effects. Marin reiterated the report’s policy recommendations: “National regulators should be encouraged to refer to the NFRD when formulating NFI requirements for their SMEs, as this will help enhance international comparability of NFI reporting by SMEs. The SMEs should be encouraged to carefully consider voluntarily providing NFI, as this may yield benefits to them, their stakeholders and the wider public. And finally, some elements of the NFRD might be suitable for voluntary adoption by SMEs and the European Union might consider need for non-binding guidance on NFI by SMEs”.
To conclude, Marín said that the audit market is growing slowly, if at all, in many countries and audit standards require significant revision or replacement to achieve relevance and scalability for SMEs. Meanwhile, reporting of NFI is fast emerging across the EU, even amongst SMEs, and SMPs have key role to play in advising SMEs on ESG / sustainable practice and NFR.
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EFAA represents the professionals in accounting, auditing and the finances that provide high quality services to the European SMEs. In general, its members represented by national bodies are small and medium professionals (SMPs). The EFAA members are thus SMPs that provide a wide range of professional services (auditing, accountancy, as well as tax, commercial, economic, financial and strategic advisory) to the SMEs. At present, EFAA counts with a wide power of representation as it unites 13 national organizations of auditing, accountancy and tax advisory with more than 370.000 members that offer their services to millions of SMEs in the EU.