Accounting And Audit If There Is No Deal

The government have issued their technical notice for accounting and audit if there is no deal. Key features are as follows:

Audit

In order to sign off an audit report for a UK audit firm, the auditor must possess a qualification recognised in the UK. The UK will provide unilateral recognition up until the end of 2020, for individuals to apply for their EU qualification to be recognised in the UK. Recognition will be dependent on passing an aptitude test. The aptitude test will not be required by auditors with Irish qualifications, as these are granted by UK qualifying bodies in any case.

During the transitional period, EU qualified auditors will count towards the majority required for those owners or managers of a UK audit firm. After transition, only UK auditors will count, except if the individual was recognised as part of the management body before exit.

UK audit qualifications may not be recognised in the EU and a UK audit firm that wishes to own part of, or be part of the management body of, an EU firm will no longer be recognised among the required majority of EU qualified owners or managers.

Audits of EU businesses seeking to raise capital on a UK regulated market will need to be done by an FRC registered auditor. The audits will need to be included in a cycle of inspection visits in the EU member state where the business is incorporated until that state is recognised as having an equivalent audit framework.

These potential changes could clearly have huge consequences for international networks and also smaller cross-border firms as it may mean a total change in their management or ownership structure. It also has impacts for those working in the UK with EU qualifications and vice versa. It is still possible that a deal will be done that prevents some or all of these impacts, but better to plan in case this is the outcome.

Accounting And Corporate Reporting

Certain exemptions in group situations will be lost in a no-deal scenario. For example, the dormant company accounts exemption in s 394A, where it is reliant on an EEA parent. The exemption will only apply if the parent is a UK parent in a no-deal Brexit. This will mean certain dormant companies having to prepare accounts each year.

UK businesses with branches in the EU will become third country businesses (i.e. a third country from an EU perspective) and will need to comply with the specific accounting rules in the member state in which they operate. Compliance with the Companies Act may not suffice, so business operating in the EU will need to consider the local rules in that country.

UK Companies listed on an EU exchange may need to change their compliance statement in respect of their accounts being in accordance with IFRS, as it will no longer be assumed that the UK requires this.

Other Areas

The guidance note provides links to other related technical notices, such as the registration and disclosure obligations for overseas companies in the UK; structuring your business, Providing services including that of a qualified professional.