Changes to accounting and audit rules in the event of no-deal Brexit
The government has published guidance outlining changes to audit, accounting and company reporting rules in the event that the UK leaves the EU in March 2019 with no agreement in place, to allow the sector to ‘make informed plans and preparations’
12 Oct 2018
The document states that although the rules relating to audits of UK companies operating solely within the UK will remain unchanged, there will be additional requirements relating to the audits of UK companies operating cross-border and to the provision of audit services cross-border.
In the event of a no-deal Brexit, an audit firm wanting to be an auditor of a UK business with debt or equity traded on an EU market will need to register as a third country auditor in the Member State in which the securities market is situated or operates. The audit will then be in scope of a cycle of inspections by the recognised authority for that market.
To be able to sign audit reports on behalf of an audit firm approved in the UK, the auditor must be in possession of a qualification recognised in the UK. The UK will provide auditors with EU qualifications with a transitional period, from exit until the end of December 2020, during which they can apply to be recognised as auditors in the UK subject to passing an aptitude test.
At the end of the transitional period EU auditors will cease to benefit from automatic recognition of their qualifications in the UK and may no longer be offered an aptitude test. However, EU qualified auditors who were recognised as a result of an aptitude test process, which is begun before the end of the transitional period, will continue to be recognised.
Audits of EU businesses seeking to raise capital by issuing shares or debt securities on a regulated market in the UK will need to be undertaken by an auditor registered with the Financial Reporting Council (FRC). The audits will need to be included in a cycle of inspections, in which the FRC will visit the registered auditor in the EU Member State where the business is incorporated until that Member State is recognised in the UK as having an equivalent audit regulatory framework.
Accounting and corporate reporting
The guidance states: ‘Certain exemptions in the Companies Act 2006 (CA 2006) relating to the preparation of individual accounts will no longer be extended to companies with parents or subsidiaries incorporated in the EU.’
The guidance goes on to give an example of dormant accounts preparation explaining that the exemption from having to prepare individual accounts for dormant companies will only continue to apply after Brexit if the parent company is established in the UK.
Companies may also be required to prove compliance with International Financial Reporting Standards (IFRS). The guidance states: ‘UK companies listed on an EU market may also be required to provide additional assurance to the relevant listing authority that their accounts comply with IFRS as issued by the International Accounting Standard Board (IASB).
‘This will need to be done in accordance with EU third country requirements. In the short term, this could lead to changes to the compliance statements which are required within the annual accounts submitted to listing authorities.’
Accounting and audit if there’s no Brexit deal, issued by the Department for Business, Energy and Industrial strategy (BEIS), is here.
Report by Amy Austin