Use of the ISA For the Auditing of Small and Medium-sized Enterprises

Stine J. Nielsen

Student thesis: Master thesis


The aim of this thesis is to investigate how to use the International Standard Auditing (ISA) in auditing of small and medium-sized enterprises. The ISA define how the auditor must perform the audit. The standards are based on the Audit Risk Model which is based on three parameters. When auditing small small and medium-sized enterprises the focus is mainly on the parameter of detection risk.
The description of the stakeholders to the financial statement shows how the relationship between the stakeholders influences the information requirements in the financial statement. The auditing ensures the safety of this information. Though there are often misunderstandings of this safety and many stakeholders think that the auditing provides complete safety which is not the case. Consequently, a conflict between the purpose of the auditing and the stakeholder expectations occurs.
The auditor’s job is to ensure that the information in the financial statement benefits the stakeholders’ interests. In auditing, small and medium-sized enterprises’ differentiate from larger enterprises’ in a number of ways. The differences are often less internal control and owner-managed. It means that instead of the normal control and substantive procedures that are obtained, the auditor must put more emphasis on the substantive procedures alone. The ISA’s are trying to take account for this by containing instructions specific for small businesses, which is useful when comparing the theoretical framework with the findings of the research.
The research is designed as a questionnaire survey and circulated to selected auditors. The analysis shows that the challenges identified in the qualitative and quantitative research are in line with the suggestions of the theoretical framework. The instructions in the ISA’s are therefore found to be useful in practice. However, the respondents did not think the ISA’s were useful generally in auditing small and medium-sized enterprises’. Because of the challenges using the ISA’s on small businesses, the Nordisk Revisor Forbund has presented an alternative, The Nordic Standard, as an attempt to cope with these challenges. However, it is still unknown if the stakeholders will find the alternative useful.
There are several arguments for auditing with the ISA’s is the best way to ensure the stakeholders needs and not increase expectation gap.
The study of this thesis shows that the instructions in the ISA’s are very much useful in auditing small businesses. However, often the instructions in the ISA’s are not used in the right way which create challenges.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2016
Number of pages139
SupervisorsJørgen Valther Hansen