If you’ve ever waded through the International Standards on Auditing (ISAs) and thought, “This is great, but it feels like it’s written for giant multinationals, not my clients,” you’re not alone. The Financial Reporting Council (FRC) has noticed, too – and they’re doing something about it.

In July 2025, the FRC released its Practice Note Exposure Draft aimed squarely at making audits of smaller and/or less complex entities (we’ll call them S/LCEs) more scalable, proportionate, and practical – without lowering quality or cutting corners.

Why This Matters

Audits for S/LCEs are often overburdened with processes designed for far more complex organisations. The result? Unnecessary paperwork, wasted time, and frustrated clients.

The new guidance doesn’t change the ISAs – those still apply in full – but it shows how to apply them in a way that’s fit-for-purpose. Think of it as the ISA “translation” for real-world small business audits.

What Counts as ‘Smaller and/or Less Complex’?

There’s no hard-and-fast definition – it’s all about professional judgement. But the FRC highlights some typical features:

Examples range from small private companies and charities to subsidiaries with simple operations.

Key Themes in the New Guidance

1. Planning Without Overcomplicating

• Set your audit strategy in context – who’s actually using the financial statements?
• In some cases, that might be only the owners.

Example from the guidance: A shared service centre subsidiary with no debt and only group management as users justified a higher materiality threshold than you’d expect for its size.

2. Risk Assessment that Reflects Reality

Risk in S/LCEs often looks different:

• Inherent risk: Often lower (fewer complex transactions).
• Control risk: Often higher (less segregation of duties).

The FRC even provides a sample Risk Assessment Matrix, like this excerpt:

3. Going Concern: Keep It Proportionate

Small entities might not produce elaborate forecasts, but auditors still need robust evidence.

The FRC’s examples show proportionate steps – like reviewing rental agreements and bank facilities for a property company – without demanding a corporate-style 50-page budget.

4. Fraud Considerations

The presumption of revenue recognition fraud risk applies, but can be rebutted in certain simple, predictable revenue models – if you document your reasoning.

5. Accounting Estimates

For S/LCEs, many estimates (like bad debt provisions) may have low uncertainty. The guidance says auditors can scale back testing here – provided the rationale is clear.

6. Documentation: Enough, Not Excessive

The FRC reinforces:

                     “It is neither necessary nor practicable for the auditor to document every matter
                       considered.”

Small teams can combine related documentation (entity understanding, strategy, risks) into single memos, cross-referencing rather than duplicating.

Case Study Snapshot – Bulls Restaurant & Hotel Ltd

The guidance’s fictional example illustrates how it all comes together.

Entity profile:

• £8.1m turnover
• 38 permanent staff + casuals
• Two main revenue streams: food & beverage (38%), room bookings (62%)
• Significant cash transactions – key fraud risk area

Top 3 Risks Identified:

1. Fraud from cash handling.
2. Manual posting errors in sales cycle.
3. Related party transactions with suppliers.

Targeted Responses:

• Testing monthly stocktakes for anomalies.
• Matching till roll totals to accounting entries for sample dates.
• Reviewing related party invoices and arm’s-length pricing.

Why This Is Good News

This isn’t about doing “less work” – it’s about doing the right work:

• Prioritising judgement over tick-box exercises.
• Aligning procedures with real risk.
• Documenting in a way that’s meaningful, not mechanical.

Final Thought

The FRC is signalling a shift in culture: trusting auditors to tailor their approach to the business in front of them. For firms working with S/LCEs, this could mean audits that are sharper, leaner, and more relevant – while still rock-solid in quality.