Finland is one of the first countries to adopt the International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (the ISA for LCE). This step marks a significant milestone for the Finnish auditing community.
The majority of Finnish Audit Clients are LCEs
The Nordic countries, including Finland, have been particularly active in promoting a separate standard for the audits of SMEs. We in Finland followed the LCE project closely, even listening to IAASB meetings, and provided comments to the draft standard from the Finnish perspective. In Finland, the audit thresholds are low and the majority of audit clients are SMEs (small and medium-sized enterprises).
The ISAs are a part of the Good Auditing Practice in Finland
In Finland, the ISAs are not legally mandated, and no penalties can be imposed on auditors for non-compliance of the specific details of the standards. ISAs are, however, considered a part of the Good Auditing Practice in Finland and the Auditor Oversight takes them into account when evaluating the quality of the auditors’ work.
The implementation of the ISA for LCE does not require any legislative changes in Finland and the standard can therefore be quickly implemented. The stakeholders, particularly the Auditor Oversight and the regulators, have not opposed the implementation of the ISA for LCE.
Implementation carried out in 2024
The implementation of the ISA for LCE is already underway. A Finnish translation of the standard was published before summer, completed by our in-house Translation Specialist in collaboration with Review Committee members. We have also prepared our own ST Recommendation for the Authority in the Finnish context. In June we held a webinar where the ST Recommendation was discussed further.
We are updating our audit documentation tool STanssi and will publish new workbooks in Aug-Sep followed by an extensive training tour in Sep-Oct. The training concentrates on how to conduct a SME audit applying the ISA for LCE.
We encourage our members to adopt and apply the ISA for LCE in the audits of the reporting period 2024. However, because the transition is voluntary, each auditor can proceed at their own pace – or continue to apply the ISAs.
Few changes in the audit practice
In Finland, the ISAs are applied even more proportionally than allowed by the ISAs when auditing the small (or micro) entities that form the majority of the audit clientele.
That is one of the reasons for that the transition from applying the ISAs to applying the ISA for LCE probably does not have many direct effects on the time spent on an individual audit engagement in Finland. Nevertheless, it brings several positive aspects to the audit industry and the auditors of LCEs. We appreciate the better clarity and better flow of the text and many other details that help the auditors of LCEs to read, understand and adopt the ISA for LCE in practice.
The confidence remains high
We believe that the IAASB has done thorough work to ensure that the ISA for LCE, when correctly applied, provides reasonable assurance – the same as the ISAs. This alleviates concerns for both auditors and stakeholders. Our message has been, and will continue to be, that the ISA for LCE is rather a rationalization measure for the ”audit handbook” than a project to make the audit of LCEs lighter.
Therefore, the adoption of the ISA for LCE should not affect the confidence that is achieved and communicated by the auditor – the trust towards the audited financial statements should remain just as strong as it was before.
