Udvidet gennemgang

Abstract

A new Danish standard for auditing, called “Udvidet gennemgang” (Extended Review) was introduced in 2013. Extended Review is less extensive than a normal audit, and is based on the new ISRE 2400 standard for review. In order to compensate for the change in security, an Extended Review requires four supplementary acts, which serves to reduce the audit risk. The purpose of Extended Review is to reduce the audit costs and it is intended as an alternative for smaller companies that don’t require the safety, an audit provides. Most companies in accounting class B can choose to make use of the Extended Review, which makes Extended Review available to the majority of the Danish companies. The purpose of this thesis is to analyze the adoption of Extended Review within the Danish companies, including the effects of auditor’s guidance, expected audit cost reduction, and the security the Extended Review provides. The main data sources behind the analysis is a survey of auditors experience with, and attitude towards, the Extended Review, and publications made by FSR and well established audit firms. The analysis shows that the adoption of Extended Review is limited, with only 6 % of the Danish companies having chosen to use it in its first year. Some of the reasons for this slow adoption are: - Many companies are dependent on outside stakeholders, such as banks or suppliers that, in some cases, prefer the security of a normal audit. - Some companies in accounting class B are very complex from an audit perspective, and therefore may require the auditor to perform a substantial amount of additional audit acts, that somewhat eliminates the financial benefits of the Extended Review. While most auditors inform their clients about the Extended Review, most auditors are skeptical on the actual benefits. The skepticism is mainly based on the intended savings on app. 25 %, which the auditors consider to be significantly lower. Since companies primarily consider Extended Review to save on audit costs, the benefits are therefore reduced in many companies. As most companies put a high value on auditor’s recommendations, the skepticism among the auditors may very well contribute to the low adoption of Extended Review. The analysis further shows that companies with the following characteristics typically benefit the most from an Extended Review, contrary to a normal auditLow complexity of the company´s operating activities. - Well established internal controls that reduce the auditors need for additional acts. - Low dependency on outside stakeholders, or low security demands from these stakeholders. The characteristics are however only guidelines and it highly depends on the individual company, whether or not an Extended Review is suitable. Going forward FSR expects an increase up to 100 %, in the adoption of Extended Review. Studies show that adoption of previous changes (reductions) in audit requirements started out slowly the first year and then increased significantly. It could therefore be expected that the adoption of Extended Review follows the same pattern, which supports FSR expectations.