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Sri Lanka Auditing

Standard for the
Audits of Non –
Specified Business
Enterprises
(SLAuS for Non-SBEs)
Global levels of auditing
standards
 Difficulties of applying the ISAs in
small or non- complex entities

• Voluminous maze of requirements and

application material
• Limited scalability and proportionality in
practice due to Onerous level of
documentation, Over- engineering risk
analysis, and Extent of work on internal
controls
• Hidden value of the audits
 Solutions

1. Built within ISAs

– Develop guidance to apply ISAs to small or
non- complex entities
– Revise the ISAs applying a think small first
approach
– Revise ISAs to deal with complex language
– Apply information technology to the ISAs.

2. Developing a standalone standard

 Global practices from Europe

• Across Europe, national standard setters are adapting the

ISAs and producing guidance or specific standards for SMEs.

- National Guidance and IT Tools to apply the ISAs

proportionately.
- 10 EU Countries have developed, or are in the process
developing, such national guidance
- 10 EU Countries, IT tools are provided by professional bodies
- 2 EU Countries have developed a non-obligatory ISA Manual to
help auditors apply the ISAs proportionately.

- National Standards for Small or Non complex Audits

- France is the only country that has a specific standard for audits
of small entities. Nordic countries have also developed a
standalone standard for the audits of small entities.
 Benefits of developing a
standalone standard.
• This presents a solution that allows for a quicker response to the
issues of applying the ISAs in a small or non- complex entity as
compared to the time needed to redraft all the ISAs.
• Auditor would be able to provide a better service to small or non-
complex entities as auditor would be able to focus on exclusively on
audit procedures that are relevant to these entities.
• The fundamental principles of an audit are similar when either using
the ISAs or another set of standards: risk based approach,
assessment of the environment, evidence gathering with the
application of professional judgement and exercise of professional
skepticism at all times.
• This could bring these fundamental principles together and help
practitioners focus on the relevant aspects of the audits of small or
non- complex entities while emphasizing the need for professional
judgement.
Sri Lanka Auditing Standards (SLAuS) for the
Audits of Non – Specified Business Enterprises
 Objective

This Sri Lanka Auditing Standard (SLAuS)

for the Audits of Non – Specified
Business Enterprises (Non-SBEs) is a
principle based, stand-alone auditing
standard, tailored specifically to audit of the
financial statements of small entities.
 Why we need a separate SLAuS
for Small entities

 Concerns over the possibility of

scalability and proportionality of Auditing
Standards

 Some jurisdictions have introduced

simple standards for SME audits
 Scope

The standard is applicable for audits of small

and medium sized entities which are non-
Specified Business Entities.

SBEs Non
SBEs
 Financial Reporting Frameworks
Specified Business Enterprises (SBEs) Non Specified Business Enterprises (SBEs)

SoRP for Full SLFRS

SLFRS NGOs/NPOs
Full
for
SLFRS
SMEs SLFRS for
SLFRS for
Smaller
SMEs
Entities

The financial reporting frameworks for using this standard are Sri Lanka Accounting Standard
for Small and Medium- Sized Entities (SLFRS for SMEs) and SLFRS for Smaller Entities who
follow the Cost Model
 Financial Reporting Frameworks

• Full SLFRS
Sri Lanka Accounting Standards comprise Accounting Standards comprise
Accounting standards prefixed both SLFRS and LKAS. SLFRS refers to Sri
Lanka Accounting Standards corresponding to IFRS and LKAS are Sri Lanka
Accounting Standards corresponding to IAS.

• SLFRS For SMEs

This is a self- contained standard tailored for the needs and capabilities of
smaller businesses. Many principles in full SLFRSs for recognizing and
measuring assets, liabilities, income and expenses have been simplified, topics
not relevant to SMEs have been omitted, and the number of required
disclosures have been significantly reduced with the aim of reducing the
reporting burden for SMEs.

• SLFRS for Smaller entities

SLFRS for smaller entities is a simple financial reporting standard which could
be cost effectively used by smaller entities. SLFRSs and SLFRS for SMEs are
too complex for smaller entities and its adoption mey not be cost effective for
those entities.
 Structure of the Updated SLAuS

Chapter 01 Objectives, general principles and

responsibilities governing an audit of
financial statements
Chapter 02 Planning
Chapter 03 Identifying and assessing the risks of
material misstatement through
understanding the entity and its
environment
Chapter 04 The auditor´s response to assessed
risks
Chapter 05 Audit evidence
Chapter 06 Concluding and reporting
 Salient Features of SLAuS for Non
SBEs
1. Relies more on Substantive audit procedures
Chapter 4.2
“There may not be many control activities that could be
identified by the auditor, or the extent to which their
existence or operation have been documented by the entity
may be limited.
In such cases, it may be more efficient for the auditor to
perform further audit procedures that are primarily
substantive procedures.
In some rare cases, however, the absence of control
activities or of other components of control may make it
impossible to obtain sufficient appropriate audit evidence.”
 Salient Features of SLAuS for Non
SBEs
2. Simple benchmarks on materiality for the financial
statements as a whole
Chapter 3.3.1

“Often benchmarks could be used in determining for the

financial statements as a whole based on the nature of
the entity and relative volatility of that benchmarks. In case
of a smaller entity, the materiality might be a percentage of
revenue, assets, net assets or profit before tax.”
Where as SLAuS 320 discusses more materiality factors such as
materiality level or levels for particular classes of
transactions, account balances or disclosures in addition to
the materiality as a whole.
 Salient Features of SLAuS for Non
SBEs

3. Less stringent Quality Control requirements and

responsibility towards detecting frauds & NOCLAR

SLAuS for Non SBEs provides guidance on ethical

requirements, Acceptance or Continuance of an Audit
Engagement.
In addition to that SLSQC 1 provides guidance on HR,
Engagement performance and Monitoring.
 Salient Features of SLAuS for Non
SBEs
4. Simplifications over the Planning Sections
Chapter 2.1
“Planning an audit involves establishing the overall audit
plan for the engagement and developing an audit plan.
Adequate planning benefits the audit of financial
statements in several ways.”
Where as SLAuS 300, discusses on overall audit strategy
and developing an audit plan
 Salient Features of SLAuS for Non
SBEs
5. Simplifications on the reporting section
Comparison of contents and their sequence
SLAuS for Non SBEs SLAuS
Basis of opinion Opinion
Opinion Basis of opinion
Respective responsibilities of Material uncertainty related to going concern (if any).
Management and Auditors
Report on other legal and Key Audit Matters. (only for Auditors of listed entities)
regulatory requirements.
Information other than the financial statements and auditor’s
report there on.
Responsibilities of the director.
Auditors’ responsibilities.
Report on the other legal regulatory requirement.
CA Sri Lanka membership number of the
engagement partner. (only for Auditors of listed entities)
THANK YOU