FRC consults on third country auditors' fees to prepare for Brexit
10 Jan 2019
The Financial Reporting Council (FRC) has issued a four-week consultation on the fee structure for third country auditors (TCA) in the event of a no-deal Brexit, although it has indicated that the current fee structure is unlikely to change
10 Jan 2019
The revisions to the Third Country Auditors (Fees) Instrument 2018 are required in case the UK is unable to agree a withdrawal agreement before 29 March 2019, although the FRC does not intend to change the current fee structure or increase charges.
If no withdrawal agreement is in place between the UK and the EU providing for an implementation period, the UK will apply the third country auditors’ (TCA) regime to non-UK auditors that audit the accounts of companies from outside the UK that issue certain securities on a UK regulated market.
All EEA states will become third countries to the UK after Brexit. As a result of this, all EEA auditors of EEA securities (all equity and debt denominations of less than €100,000 (£89,900) listed on regulated exchanges in the UK will be required to register as third country auditors in the UK.
The FRC confirmed that ‘the timings of when auditors will need to register will be dependent upon whether there is a withdrawal agreement or not as this includes an implementation period during which time no changes will be made to either the UK or European regimes.’
The draft 2019 Instrument will:
• reflect changes to legislation that will be made as a result of the UK’s exit from the EU without a withdrawal agreement or implementation period being in place;
• come into force immediately after the UK’s exit in these circumstances;
• set out the level of fees required to be paid by various classes of TCA; and
• revoke the Third Country Auditors (Fees) Instrument 2018.
Section 1251 of the Companies Act 2006 provides the Secretary of State with a power to make regulations that require registered TCAs to pay periodical fees, which is delegated to the FRC.
There are unlikely to be any objections to the proposals since the 2018 instrument was implemented without any objections.
Due to Brexit, some aspects of the TCA regime, which are currently carried out by the EU on behalf of all member states, will need to be carried out by the UK.
This is likely to increase the cost of administering the regime, says the FRC, although annual fees are likely to be frozen as more firms will have to register as TCAs after Brexit.
In the consultation the FRC states that it 'expects that there will be an increase in the number of audit firms registering as TCA audit firms. This means that there will be economies of scale and the costs can be shared between more firms’.
The increase is due to all EEA states becoming third countries to the UK after exit, increasing registration numbers.
The EU Audit Directive requires the registration and regulation of auditors that audit the accounts of companies from outside the European Economic Area (EEA) that issue securities on regulated markets in the EEA (third country auditors).
The consultation closes for comment on 7 February 2019.
Third Country Auditors (Fees) Instrument 2019 - Public Consultation, issued 10 January 2019
Report by Sara White