As things currently stand, the United Kingdom will leave the European Union in 24 days.
It is still unclear whether a withdrawal agreement between the UK and the EU will be reached in time, and thus the uncertainty for business unfortunately continues.
The British Prime Minister has promised MP’s a ‘meaningful vote’ on a re-negotiated deal by 12 March. If Parliament rejects this deal, a vote will take place on whether MP’s support a ‘no deal’ Brexit – and if they do not, a further vote will take place requesting an extension to the Article 50 negotiation process.
I want to again encourage members to strongly consider the potential changes that Brexit could bring to your business and those you advise, and to make every effort to prepare accordingly.
Implications for auditors
Auditors will need to consider how Brexit-related risks could impact on entities they are auditing, how auditing standards apply in a Brexit context and the implications for reporting. We have provided a framework for making that analysis, which I highly recommend members consult.
We know that auditors of UK companies with listings on the Irish Stock Exchange, will be required to register with the Irish Auditing and Accounting Supervisory Authority (IAASA) as third country auditors, if the UK leaves the EU with no deal. IAASA has indicated that they are prepared to review draft applications in advance of Brexit, so that registration can take place quickly and efficiently if necessary. Further details and guidance on how to apply can be found here.
As I’ve previously mentioned, we’re also aware of concern that non-Irish resident accountancy firms currently on the Irish audit register are unlikely to retain automatic audit rights in Ireland in the event of ‘no deal’.
We’ve provided our firms that carry out audits of Irish entities with an action framework to help 'no deal' scenario planning, in respect of those audits where the opinion is issued after Brexit.
In addition, if there is no deal, changes will be made to UK law which will impact auditor independence provisions. For auditors of Public Interest Entities (PIE), the existing prohibition for the provision of non-audit services to PIE subsidiaries will be extended globally. Please click here for further details.
Contingency planning for ‘no deal’
Preparations for ‘no deal’ have stepped up in recent months and – while I still hope such a scenario will be avoided – it is now more likely than ever before.
We continue to update our ICAEW Brexit hub, which contains a comprehensive library of information and guidance to help you assess the implications of Brexit and prepare for a number of scenarios – with or without a withdrawal deal. Recently updated sections include our resources on government guidance and grant schemes for customs training. I strongly urge members to refer to the relevant notices contained within these pages.
HMRC has also issued its own guidance, urging British businesses to consider taking three steps to ensure they can continue to trade with the EU with minimal disruption, in the event of ‘no deal’. Businesses will need to:
There are also changes to VAT IT systems to be aware of.
HMRC estimates that some 240,000 businesses will need to take such action if no deal is reached, but that so far only 41,000 (17%) have done so.
The economic instability resulting from this uncertainty means that the rigour and quality of financial reporting is more important than ever, but it is also more challenging.
UK companies are enduring their most difficult reporting season in recent history. Businesses are having to disclose sensitivities around a range of potential scenarios - when so much remains unknown - and factor this into their accounts.
Now more than ever, details around why certain judgements and assumptions have been made must be included with rigour and clarity. The numbers may change once we know more about the future UK-EU relationship, but keeping the market properly informed will avoid unexpected profit warnings and maintain investor confidence.
Moreover, with the current scrutiny of financial reporting in the UK, it’s never been more important to ensure its wider integrity, and that it meets the expectations of investors and the wider public.
We recognise the strain this uncertainty is placing on members and wider businesses, and we continue to invest in providing support wherever we can. Please continue to visit our Brexit hub for updates as the situation develops.
We also continue to receive a great deal of valuable feedback on how Brexit is affecting members’ businesses and clients across the world. Please send any questions or comments to firstname.lastname@example.org and a member of our team will get back to you.
Please follow me on Twitter @MichaelIzza for further updates on this and other matters.