Since January 2025, the FRC have been running a campaign “to help small and medium-sized enterprises (SMEs) access audit services and reduce reporting burdens where possible”.
One element of this campaign has been a focus on auditors of SME’s, due to sentiment in the market that the requirements of the auditing standards are too onerous for the audits of SME’s. Whilst the more recent ISA’s include paragraphs in the Application Guidance citing “scalability”, the reality is that proportionate audit is difficult.
On 17 July 2025 the FRC published the emerging findings from its market study examining how effectively the audit market serves small and medium-sized enterprises (SMEs) and launched a consultation on new guidance to help auditors deliver more proportionate audits of these businesses.
This resulted in a draft Practice Note ‘Guidance for audits of smaller and/or less complex entities’ being published to attempt to address the issues noted in the market study (noting experienced auditors will remember that there used to be ‘Practice Note 26 – Guidance on smaller entity documentation’, which was withdrawn by the FRC in June 2018 as it was considered that this PN no longer supported the documentation requirements of a high quality audit- the draft PN was basically bringing PN 26 back to life!).
Now, on 24 March 2026 the FRC has issued “Practice Note 28 (“PN28”): Guidance for audits of small and medium-sized entities” which “provides guidance to auditors on how to apply the requirements of the International Standards on Auditing (ISAs) (UK) to the audit of financial statements of small and medium-sized entities in a scalable, proportionate, and effective way”.
The full release can be found at FRC announces measures to support small business growth with PN28 at Practice Note 28
Further to this the FRC says that they are now “taking an important step in looking at international guidance on Less Complex Entities” in reference to IAASB’s “International Standard on Auditing for Audits of Financial Statements of Less Complex Entities” published December 2023.
HAT have been involved in several working parties and round table discussions on this subject, with both the FRC and ICAEW and we will continue to represent the interests of smaller audit firms as this develops further.
