Who Cannot Use the ISA for LCE? Scope Limits and Eligibility in Indonesia

By Hendrawanto, SE., Ak., CA., CLI., AseanCPA., CPA., CFI. · 15 October 2026

The ISA for LCE is not automatically available merely because a client is small, privately held, uses a simplified reporting framework or employs few people. Eligibility requires a cumulative assessment of prohibitions, complexity, local thresholds and the engagement as a whole.

In Indonesia, there is an earlier gate. At 15 October 2026, IAPI says adoption is still under way, targeting audits of periods beginning on or after 31 December 2027. A target date is not the same as a final, effective Indonesian standard. For now, the ISA for LCE is suitable for training, gap analysis and methodology preparation—not as a replacement for the Indonesian Standards on Auditing currently in force.

The Short Answer

Even after adoption in Indonesia, the ISA for LCE cannot be used where:

1. law, regulation, the national standard setter or the audit mandate requires another framework;
2. the entity falls within a prohibited class, such as a listed entity, a public deposit taker or a public insurance provider, subject to the applicable Authority;
3. a group audit contains a prohibited component or uses component auditors for work beyond narrowly defined physical-presence procedures;
4. the entity or group is too complex on a qualitative assessment;
5. the entity exceeds quantitative limits eventually established by Indonesia; or
6. the auditor's risk assessment later shows that the original LCE conclusion is no longer supportable.

Layer One: Entities Explicitly Prohibited

1. Indonesian Requirements Mandate Another Framework

The ISA for LCE cannot be used if legislation, a sector regulator, the national standard setter or the party setting the audit mandate prohibits it or requires the full auditing standards. IAASB's global decision does not override Indonesian authority. Indonesia may add prohibited classes, make permitted jurisdictional modifications, and establish quantitative thresholds.

2. Listed Entities

Under the final 2023 standard, an entity whose shares or debt are quoted or listed under the rules of a recognised stock exchange or equivalent body is outside scope. This is a public-interest prohibition, not a conclusion reached only after proving operational complexity. A listed entity with one business line and few employees is still ineligible.

In July 2026, the IAASB proposed replacing listed entity with publicly traded entity. That proposal remains an exposure draft and must not be treated as a final rule.

3. Entities Whose Main Functions Include Taking Deposits from the Public

This category covers entities for which taking deposits from the public is one of the main functions. Indonesian commercial banks, rural banks and Islamic rural banks are obvious entities to test first. Substance matters: customer advances received by an ordinary trading company are not automatically public deposits. Any permitted exception for a subcategory must come from a valid jurisdictional decision, not a firm's unilateral policy.

4. Entities Whose Main Functions Include Providing Insurance to the Public

An insurer whose main function includes underwriting public risk falls within the base prohibition. Premium volume, workforce size and a simple legal structure do not remove that prohibition. An audit firm cannot create its own exception before Indonesia issues an explicit rule.

5. Other Classes Prohibited in Indonesia

Indonesia may add classes based on public interest, prudential supervision, financial obligations to the public, stakeholder numbers, sector significance or systemic impact. Before final Indonesian rules are issued, it would be inaccurate to say that every finance company, securities firm, fintech, pension fund, cooperative, state-owned enterprise, regional enterprise, public-service agency, hospital, university or foundation is prohibited. It is equally inaccurate to assume that all are eligible.

6. Certain Group Audits

Group audits are not automatically prohibited. However, the ISA for LCE cannot be used where any entity or business unit in the group is itself within a prohibited class, or where component auditors perform audit work. The component-auditor exception is narrow: involvement must be limited to a specific procedure requiring physical presence, such as attending inventory counting or physically inspecting assets or documents.

If another audit firm audits the complete financial information of a subsidiary or performs a broader package of audit procedures for the group auditor, the restriction applies. A small number of components does not preserve eligibility.

Layer Two: Not Prohibited, but Too Complex

Passing the prohibition test does not create automatic eligibility. The auditor must still determine whether the entity as a whole fits the less-complex circumstances contemplated by the standard. The characteristics are descriptive, not a mechanical checklist, and must be considered individually and together.

An isolated complex matter does not always disqualify an entity. But if complexity is pervasive, interacts with other areas, or creates doubt that the ISA for LCE's requirements are sufficient to address the risks, the full standards are more appropriate.

“Around Five” Is Not a Global Cut-off

IAASB guidance gives examples of a core management team of around five or fewer individuals, around five or fewer people involved in financial reporting, and a group with around five or fewer entities or business units. These are illustrative indicators within a qualitative assessment—not rules that six is automatically complex or four automatically less complex.

Group Audits: Entity Count Is Not the Whole Answer

For group financial statements, the assessment operates at two levels: each entity or business unit must avoid the prohibitions and fit an LCE profile, while the group as a whole must have a less complex structure, information access and consolidation process.

A separate statutory audit of a subsidiary must be distinguished from the group audit. The subsidiary may be eligible to use the ISA for LCE for its own statutory financial statements if every criterion is met, even when the group financial statement audit uses the full standards. The two engagements need not reach the same conclusion.

Layer Three: Indonesian Quantitative Thresholds

The IAASB does not prescribe a global revenue, asset or employee threshold. Each jurisdiction is expected to establish limits suited to its economy. Possible measures include revenue, net assets, total assets and number of employees.

Indonesia's eventual requirements need to explain whether one exceeded measure is enough to disqualify, whether several criteria operate together, the measurement period, how to treat an entity that crosses a limit during the year, and whether industry-specific thresholds apply. Until those rules are issued, firms should not fill the gap with invented numbers.

SME classifications, SAK EMKM, SAK for Private Entities and statutory-audit thresholds under other regulations do not automatically become ISA for LCE thresholds; they were designed for different purposes. The IAASB also considers audit hours and engagement risk ratings inappropriate as jurisdictional thresholds because they depend on audit design and firm methodology, not solely on the entity's nature.

Six Indonesian Application Examples

1. Family-Owned Distributor with One Location

Owners and directors are clear, there is one business line, transactions are routine, accounting software is commercial, and there are no subsidiaries. Conclusion: a strong candidate after adoption, subject to local thresholds and firm policy.

2. A Small Rural Bank

The structure may be simple, but a main function is taking public deposits and the entity is prudentially supervised. Conclusion: within the base prohibition unless Indonesia validly modifies the rule for a particular subcategory.

3. A Privately Held Fintech with 25 Employees

It is not listed and may not take deposits, but it relies on credit algorithms, multiple data integrations, cloud providers and intensive oversight. Conclusion: not automatically prohibited under the base categories, but the complexity indicators are strong. Use is inappropriate if the complexity is pervasive or Indonesia prohibits the class.

4. A Group with Three Indonesian Subsidiaries

All companies use the same policies, system and reporting date; the group team performs all work. Conclusion: the group may remain eligible if its structure and consolidation are simple. The number of subsidiaries is not determinative.

5. A Simple Group Using Another Firm to Audit a Subsidiary

The component auditor audits the subsidiary's complete financial information and reports to the group auditor. Conclusion: the group audit cannot use the ISA for LCE. This differs from local assistance limited to attending a physical inventory count under detailed group-auditor instructions.

6. A Small Foundation, Public-Service Agency or Regional Enterprise

Small size and a non-commercial purpose do not automatically create an LCE. The audit mandate, public funding, stakeholders, regulation, reporting system and additional obligations must be assessed. Conclusion: neither automatically prohibited nor automatically eligible.

A Seven-Gate Firm Decision

1. Jurisdictional status: confirm adoption, permission and effectiveness in Indonesia for the relevant period.
2. Sector requirements: identify any law, regulator or audit mandate requiring another framework.
3. Prohibited entity classes: test listing status, deposit-taking, insurance and any local prohibited classes.
4. Group audit: test every component and the scope of any component-auditor work.
5. Qualitative complexity: assess the business model, ownership, organisation, finance, IT, reporting, estimates and consolidation.
6. Thresholds and firm policy: compare against Indonesian limits and any more conservative quality-management policy adopted by the firm.
7. Reassessment: after understanding the entity and assessing risks, confirm that the LCE conclusion remains supportable.

If the first gate is not passed, the analysis stops. An explicit prohibition cannot be cured by more documentation. Where qualitative uncertainty remains, use the full auditing standards.

Minimum Documentation

• the legal basis, jurisdictional decision and effective date;
• testing of every explicit prohibition;
• analysis of the business, regulation, ownership, governance, finance function, IT, estimates and group;
• comparison with applicable quantitative thresholds;
• the firm's methodology and quality-management policy;
• approval through the firm's acceptance or continuance process;
• reassessment after identifying and assessing risks; and
• a transition plan if circumstances require the full auditing standards.

The assessment should be refreshed annually. An acquisition, bond issuance, regulatory change, ERP implementation, derivative transaction, ownership restructuring or use of a component auditor may change the conclusion.

Errors to Avoid

1. Equating an LCE with an SME, a private company or a user of SAK for Private Entities.
2. Inventing a revenue or asset threshold before Indonesia sets an official limit.
3. Assuming every OJK-supervised entity is prohibited—or automatically eligible because it is not listed.
4. Ignoring IT complexity because the workforce is small.
5. Treating the “around five” examples as universal cut-offs.
6. Assuming every group audit is prohibited or every small group is eligible.
7. Starting with the ISA for LCE and adding selected full-ISA procedures to patch a framework that was unsuitable from the outset.

Conclusion

The right question is not “Is this company small?” It is “Has use been permitted, are all prohibitions cleared, and are the relevant characteristics genuinely less complex?”

At 15 October 2026, Indonesia is still adopting the ISA for LCE. Even after it becomes effective, listed entities, public deposit takers, public insurance providers, other locally prohibited classes and certain group audits will remain outside scope. Other entities can use the standard only where qualitative complexity, quantitative thresholds, firm policy and the risk assessment all support the decision.

For the standard's purpose, structure and implementation readiness, see the companion article ISA for LCE: Proportionate Audits Without Lowering Quality. You may also visit Financial Statement Audit or the Proposal page.

Official References

• IAASB, International Standard on Auditing for Audits of Financial Statements of Less Complex Entities, 6 December 2023.
• IAASB, ISA for LCE Authority of the Standard Supplemental Guidance, 27 August 2024.
• IAASB, ISA for LCE Frequently Asked Questions, 30 June 2025.
• IAPI, Get to Know ISA for LCE, 10 September 2026.
• IAPI, Public Accountant Professional Standards, accessed 15 October 2026.
• IAASB, Proposed ISA for LCE (Revised)—Exposure Draft, 22 July 2026. Status: not final.

This article is educational information, not legal advice, a client-acceptance decision, an audit opinion or professional advice for a specific engagement. Indonesian status and eligibility must be determined from applicable standards, jurisdictional decisions, sector regulation, quality-management policies and engagement facts. The Indonesian version is the original text.