International Standards on Auditing (ISAs) apply equally to the audit of all entities, whatever their size. However, the manner in which ISAs are applied differs from entity to entity and depends on the use of the auditor’s judgement. The characteristics of smaller entities may include:

Required:

• Common ownership and management – so the owners run the business
• A dominant individual in charge who makes most of the decisions
• Limited controls over the processing of transactions with few administrative staff taking on a variety of duties
• The use of standardized computer packages
• Reliance on the auditor for accounting expertise.

These characteristics have an effect on the way the audits of smaller entities are approached, how the audit is conducted and the relationship between auditor and client.

Describe how the audit might be affected by the circumstances shown above and the nature of the relationship between auditor and client in this case as opposed to, say, carrying out the audit of a much larger company.