Udvidet gennemgang: Hvordan påvirkes revisors arbejde ved indførelsen af udvidet gennemgang, når virksomhedernes byrder skal begrænses?

Camilla Lillemose Dose & Kenneth Buch Knudsen

Student thesis: Master thesis


The Danish Parliament passed a resolution in December 2012 resulting in a less strict standard for audit of small companies – an extended review. The enterprises in reporting class B, with the exception of funds, have been able to apply the standard since January 2013. Denmark has - contrary to other EU countries - had a tradition for statutory audit comprising the whole of reporting class B. The political interest within this area is to be seen in connection with the focus on creating attractive frames for the many small enterprises that constitute the backbone of the Danish business sector. Our Thesis illustrates how the auditor’s work will be affected by the goal to limit burdens. We will examine how the standard differentiates from the auditor’s existing reports and the stakeholders’ immediate reaction in this respect. Finally, we will assess the consequences that the standard may have on the auditor’s expectation-perfomance gap. The standard is based on review standard ISRE 2400, which is negative in the wording of the conclusion expressed with limited assurance. The assurance of an extended review is higher than that of a review, but less than that of an audit. What differentiates an extended review from a review is four statutory supplementary procedures which enable a positive wording, but still with limited assurance. Three of the procedures will include external documentation obtained from the company’s attorney and bank, and from public available registrations in the Land Registry and the Registry of Persons and Motor Vehicles. In addition, the auditor is required to obtain documentation that taxes and duties reported to the tax authorities are in accordance with the bookkeeping records. The professional and industrial bodies have welcomed the standard because of the goal to limit the burdens of the enterprises. It means, however, that the auditor performs less procedures than if an audit had been performed. There will be certain types a business where e.g. the composition of accounting items, the group of owners or the structure of the financing will make an extended review less suitable. The lenders are expected to be an important factor for the success of the standard, however, our studies show that the banks are still not yet quite settled with respect to an extended review and that a lower degree of assurance in the auditor’s opinion may lead to higher borrowing costs. In spite of an international alignment of review and audit, the auditing industry has a problem in relation to the outside world’s expectations to the work performed by the auditor. The Danish standard is in line with the EU draft 8th Company Law Directive which opens up to the possibility that the member countries draw up local standards for small enterprises. As the standard is not internationally coordinated, like review and audit, an extended review may risk to have a negative impact on the expectation gap. On the other hand, it is to be expected that the provisions of the updated ISRE 2400 with addition of the four statutory, supplementary requirements are so unambiguous that it will improve the auditor’s performance gap. As mentioned, it is the nature of an extended review that the auditor performs additional procedures in relation to a review, but less in relation an audit. Therefore, the cost of an extended review will probably be lower than the cost of an audit according ISA, which applies today to the major part of reporting class B enterprises. As yet, no financial statements have been subject to an extended review because the standard came into force only in January. Our Thesis is therefore based on legal sources, responses to consultation papers from professional and industrial bodies, and interviews.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2013
Number of pages125