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Auditing and Assurance Standards (AUSs) issued between March 1999 and March 2003. For AUSs issued subsequent to March 2003, whenever necessary, considerations in the audit of small entities are included in the body of those AUSs.
3. The revised AGS 1048 is operative from the date of issue.
4. The revised AGS 1048 is based on the revised International Auditing Practice Statement IAPS 1005 “The Special Considerations in the Audit of Small Entities”, issued in late 2003 by the International Auditing & Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). The revised IAPS 1005 takes account of International Standards on Auditing (ISAs) issued between March 1999 and March 2003.
5. Guidance contained in the revised AGS 1048 (IAPS 1005) will be withdrawn when revisions to related AUSs (ISAs) become effective.
APPENDIX 1
COMMENTARY ON THE APPLICATION OF AUSS WHEN THE AUDITOR ALSO PREPARES THE ACCOUNTING RECORDS AND FINANCIAL REPORT OF THE SMALL ENTITY
This appendix is relevant to auditors who are legally and professionally permitted to prepare accounting records and a financial report for their small entity audit clients. In preparing the accounting records and financial report, the auditor may obtain useful information about the entity and its owner-manager’s aims, management style, and ethos. The auditor also acquires an in-depth knowledge of the entity, which assists in planning and conducting the audit. The auditor nevertheless remembers that the preparation of accounting records and financial report for the small entity audit client does not relieve the auditor from obtaining sufficient and appropriate audit evidence. The matters set out below may be relevant in the application of the AUSs by the auditor who also prepares the accounting records and financial report for the small entity audit client.
AUS 204: Terms of Audit Engagements
1. Where the auditor has assisted with the preparation of the financial report, owner-managers of small entities may not be fully aware of their own legal responsibilities or those of the auditor. Owner-managers may not appreciate that the financial report is their responsibility, or that the audit of the financial report is legally quite distinct from any other services that the auditor provides. One of the purposes of an engagement letter is to avoid any such misunderstandings.
2. Paragraph .03 of AUS 204 states that the auditor may agree terms of engagement for other services by means of separate letters of engagement. However, there is no requirement for separate letters and, in the case of a small entity, there may be practical reasons why a single combined letter may be more appropriate.
AUS 208: Documentation
3. When the auditor prepares the accounting records or financial report for a small entity, such services are not audit work and the requirements of AUS 208 do not ordinarily apply to, for example, documentation of the work done in preparing the financial report.
4. A consideration when establishing a retention policy for the working papers of a small entity is that owner-managers often request copies of the working papers containing accounting information to assist them in the administration of their entity. Paragraph .14 of AUS 208 states that working papers are the property of the auditor. Although portions of, or extracts from, the working papers may be made available to the entity at the discretion of the auditor, th