Extended Recview or Traditional Audit

Abstract

Due to the globalization, the audit industry is going through a transformation process to be become more agile and to be better at meeting the requirements from the stakeholders. This thesis is about the new Danish declaration standard extended review (limited assurance) and the differences between extended review and traditional audit.
Bare from analytical summary and inquiries, the new standard only requires few audit steps such as; bank confirmation, confirmation from the company’s lawyer and tax reporting.
According to some experts in the market the new standard is adequate alternative for small entities, who are not interested traditional audit. However, they are at the same time interested in more than review. However, several stakeholders (e.g. financial institutions, auditors) have expressed their concerns related to the change from traditional audit to extended review. The concerns were related to the consequences of not performing the traditional audit, were probability for the auditor to discover errors can be diminished. Audit firms have in several occasions highlighted that this standard gives only limited assurance and it can be difficult to relay on financial statements, especially during financial crisis, where the performance of companies is unstable or decreasing.
The main purpose of this thesis is to illustrate whether extended review can replace traditional audit without any significant consequences. To be able to understand whether it is possible, I have in this thesis selected an e-commerce company, Miinto ApS as a case company, where after a diligent planning process including but not limited to understanding the company and its risks, determined the material accounts. After detailed analysis of Miinto ApS accounts from 2015 financial statement the material accounts are determined to be Revenue, Inventory and Trade Receivables.
The result of the analysis and the risk assessment showed that all these material accounts had high inherent risk and control risk. By replacing the traditional audit with extended review, where audit steps related to these material accounts be scoped out may increase the risk of errors not being detected.
During the interview with main stakeholders of Miinto ApS including the financial institution we noted that they all rejected replacing traditional audit with extended review due to limited assurance.