Module: | Statutory Audit, NFRA & ICAI Standards
Q48: Consider the following statements regarding the proposed auditing standards for "Less Complex Entities" (LCEs) finalized by the ICAI in early 2026:
1. The LCE standards are specifically tailored for small and medium enterprises that have minimal exposure to public investors and possess less complex organizational structures.
2. These standards significantly reduce disclosure requirements and simplify the audit documentation process to promote the ease of doing business.
3. The application of LCE standards does not compromise the fundamental requirement of audit quality or the application of professional skepticism by the auditor.
Which of the above statements is/are correct?
2. These standards significantly reduce disclosure requirements and simplify the audit documentation process to promote the ease of doing business.
3. The application of LCE standards does not compromise the fundamental requirement of audit quality or the application of professional skepticism by the auditor.
Which of the above statements is/are correct?
✅ Correct Answer: D
🎯 Quick Answer:
D. All statements 1, 2, and 3 are correct.Structural Breakdown: Statement 1 is correct; the standards target entities with concentrated ownership and low public risk.
Statement 2 is correct; the primary goal is to strip away redundant compliance processes and lower audit costs.
Statement 3 is correct; while documentation is streamlined, the core pillars of an audit—obtaining reasonable assurance and applying professional skepticism—remain non-negotiable.
Historical/Related Context: The global accounting profession (via the IAASB) recognized that applying the same massive auditing standards meant for multinational banks to a local, 50-person manufacturing company was economically unviable, leading to the creation of LCE frameworks globally, which India has now adopted.
Causal Reasoning: A simpler business has simpler risks.
By scaling the audit procedures proportionally to the size and complexity of the entity, the regulator prevents small businesses from being suffocated by compliance costs while still ensuring reliable financial reporting.