Authority Supplemental Guideance of ISA for LCE: Consequences of the Authority Supplemental Guidance for Auditors on the Application of ISA for LCE

Abstract

IAASB developed and approved a new audit standard the December 2023, IAASB’s International Standard on Auditing of Financial Statements of Less Complex Entities. The standard is effective for audits of financial statements of LCEs for periods beginning on or after December 15, 2025. Authority Supplemental Guidance was approved August 2024, as an additional guidance to help jurisdictions adopt and implement the ISA for LCE. The purpose of the Authority Supplemental Guidance is to provide additional information that may be of assistance when adopting and implementing ISA for LCE. The guidance has been developed to further explain matters and circumstances that may be relevant in determining the appropriate use of ISA for LCE. This thesis will examine the key implications of the Authority Supplemental Guidance in the application of ISA for LCE for auditors in Denmark, and how these implications can be managed to ensure consistent application of ISA for LCE. There will be a particular focus on the new standard, ISA for LCE, which requires auditors to exercise their professional judgment to a greater extent during the audit phases compared to the current ISA standards. The purpose of the thesis is to gain a better understanding of the most essential implications of implementing ISA for LCE, based on the Authority Supplemental Guidance. This aims to ensure a uniform and consistent application of ISA for LCE in Denmark, so that auditors can maintain their role as public trust representatives. The research will be conducted by analyzing statements from interviews with five auditors, a summary of an interview with a representative from FSR – Danske Revisorer, and a written statement based on an interview guide. Based on the collected data, it is concluded that there is a need for additional guidance for Danish auditors to consistently apply ISA for LCE in Denmark. This includes the need to define what constitutes a Less Complex Entity, as well as additional guidance through the audit phases to apply ISA for LCE and ensure consistent implementation, in order to maintain audit quality among the authorities.