New Brexit guidance on accounting and auditing
David Wood highlights the recent Government guidance on accounting and auditing post-Brexit.
The UK Government issued two additional guides on 24 May to help companies and audit firms plan for a no-deal Brexit:
Each guide covers a range of high-level matters and provides links to where further guidance can be obtained.
Accounting if there’s no Brexit deal
This guidance focuses on how companies can comply with UK accounting and reporting requirements after the UK leaves the EU. It is therefore directed towards the UK incorporated companies and groups, and EEA companies and groups. The guidance covers the following:
Preparing annual accounts using international accounting standards
Companies will need to use ‘UK-adopted IAS’ for financial years beginning after 31 October 2019. Companies can use ‘EU-adopted IAS’ for financial years beginning before 31 October 2019 but ending after that date.
Operating as a UK company with cross-border presence in the EEA
The corporate reporting requirements in the UK Companies Act will no longer be deemed to be automatically equivalent to the EU Accounting Directives. UK incorporated companies with subsidiaries or branches in EEA countries should check the relevant reporting requirements in those EEA countries.
Operating as a UK public company with UK listing
UK incorporated groups with securities admitted to trading on a UK regulated market will continue to use accounts prepared using EU-adopted IAS for accounting periods starting before 31 October 2019 for the Transparency Directive and Prospectus Directive – they won’t need to restate those accounts or filings retrospectively. Companies will have to prepare accounts using UK-adopted IAS for all accounting periods beginning after exit day.
Operating as a UK public company with EEA listing
UK incorporated groups that issue debt from a subsidiary incorporated in the EU that is admitted to trading on an EU regulated market, or itself maintains an admission to trading within the EU will need to ensure it continues to:
- Comply with EU local regulatory provisions; including the need to publish accounts using EU-adopted IAS or IAS as issued by the International Accounting Standards Board for the subsidiary, for the parent company or for the whole group for listing in the EU;
- Produce accounts in accordance with the UK Companies Act 2006 for domestic filing purposes.
All UK Public Interest Entities (banks, building societies, insurers and issuers of securities that trade on UK regulated markets) will still be subject to the Disclosure and Transparency Rules issued by the Financial Conduct Authority (FCA), and other rules issued by the Prudential Regulation Authority (PRA).
UK companies will still need to appoint a UK registered audit firm. However, some rules relating to approving individuals and firms for registration as auditors will change. (See Auditing guidance below.)
Operating as an EEA company and group with cross-border presence in the UK
After the UK leaves the EU, EEA companies with a UK incorporated subsidiary won’t be eligible for certain exemptions from preparing and filing accounts.
Operating as an EEA public company with UK listing
An EU incorporated group that issues debt or any other securities which are admitted to trading on a UK market, will continue to be able to use accounts prepared in accordance with EU-adopted IAS under the UK Transparency Directive and Prospectus Directive framework.
Auditing EEA companies that issue securities that are admitted to trading on a UK regulated market
For all accounting years beginning on or after 31 October 2019, these companies will need to make sure that their EEA auditor is registered either as a statutory auditor in the UK or as a third country auditor on the register maintained by the Financial Reporting Council (FRC).
EEA companies that are audited by UK auditors and audit firms that are also registered as auditors in the EEA States
It is possible that UK auditors’ and audit firms’ existing registrations as EEA auditors and audit firms will not be valid. Such EEA companies should discuss this with their auditor so they can consult the relevant EEA country’s competent authority.
Auditing if there’s no Brexit deal
This guidance focuses on what audit firms, auditors, and those with an audit qualification should do to prepare before the UK leaves the EU. It is directed towards UK auditors, auditors with UK qualifications and UK audit firms, and also EEA auditors, auditors with EEA qualifications and EEA audit firms operating in the UK. This guidance covers the following:
Recognition of UK audit qualifications in EEA states
Auditors with a UK qualification who do audit work in a country in the EEA, need to contact the competent authority in that country to see if their UK qualification will continue to be recognised.
UK audit firms auditing EEA companies
Similarly, auditors expecting to sign an audit report for an EEA company after the UK leaves the EU should check with the competent authority in the country where the company is incorporated what steps need to be taken for that audit opinion to be valid.
Third-country auditors of non-EEA firms listed on EEA-regulated market
UK-qualified auditors will have to register with the competent authority in the EEA state where the market is based to be able to carry out these audits.
Businesses treated as public interest entities
The EU Audit Regulation will continue to apply to banks, building societies, insurers and issuers of securities that trade on UK regulated markets, so these will continue to be public interest entities. Businesses that are treated as public interest entities only because they issue securities that are admitted to trade on EEA regulated markets will no longer be treated as such.
The government does not anticipate significant issues for auditors of groups with companies across the EEA and the UK, including where the parent company is UK based. However, auditors should check with the competent authorities in the countries where subsidiaries are incorporated to see if there are any restrictions, for example on the sharing of information outside the EEA.
EEA audit firm ownership
EEA audit firms whose required majority of qualified owners and managers includes individuals with UK audit qualifications or UK audit firms will need to check with the competent authority in the country where the firm is registered whether those individuals or firms will continue to be recognised, or whether restructuring is required to continue to be an EEA approved audit firm.
New EEA auditor registrations in UK
EEA qualified auditors working in the UK who are not registered as a statutory auditor will have until 31 December 2020 to register as a statutory auditor with one of the UK’s Recognised Supervisory Bodies (though auditors from the Republic of Ireland are largely unaffected).
UK audit firm ownership
All individual EEA auditors will be eligible to be included in a UK firm’s required majorities of qualified owners and managers. However, those that have not registered in the UK as a statutory auditor will lose this eligibility on 1 January 2021.
UK issuers of shares or debt securities that are only admitted to trading on EEA regulated markets will not be subject to the requirements in the Disclosure and Transparency Rules issued by the FCA. All other UK public interest entities (banks, building societies, insurers and issuers of securities that trade on UK regulated markets) will still be subject to the Disclosure and Transparency Rules issued by the FCA, and other rules issued by the Prudential Regulation Authority (PRA).