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BREXIT impact on Audit for the UK

BREXIT impact on Audit for the UK
From the 1/1/2021 the rules in the United Kingdom for audit exemption based on the submission of a guarantee statement from a parent from the EU have changed.

This is extremely important for Italian parent companies who have subsidiaries in the United Kingdom and relied on the exemption under sections 479A – 479C, as they will have to undertake audits on the financial statements for the year ended 31 December 2021 on their UK subsidiaries. Failure to do so will lead to the production and filing of illegal accounts.

The sections 479A – 479C of the Companies Act 2006 were amended by the UK Government on and before 30 October 2020 and came into force on 1 January 2021.

The new rules now state the following:

  • the parent undertaking is established under the law of any part of the United Kingdom.
  • all the members of the company agree to the exemption.
  • the parent undertaking gives a guarantee under section 479C.
  • the company is included in the relevant consolidated accounts in accordance with the specified applicable accounting standards.
  • the parent undertaking discloses in the notes to the consolidated accounts that the company is exempt from the requirements of the Act; and
  • the directors of the company deliver to the registrar on or before the date that they file the accounts for that year the documents set out in the Act.

Reference is now made ONLY to any part of the United Kingdom and no longer the EEA.

Furthermore, the requirements for the parent company have also changed.

The parent undertaking must be established under the law of any part of the United Kingdom, as I have stated above.

The guarantee does not have to be provided by the ultimate parent undertaking and could be provided by an intermediate parent undertaking although that parent undertaking would have to prepare consolidated accounts.

The consolidated accounts must be drawn up under accounting standards specified in the Act (that is UK GAAP or UK-adopted IFRS and not Italian GAAP) (s479A).

 This simply means that for groups where the parent company is in Italy and the group has a UK subsidiary, that UK subsidiary MUST be audited for the financial year ended 31 December 2021 unless the group on a consolidated basis can fall within the following small company audit exemption rules and qualify as a small group. The whole worldwide group will qualify as small unless it exceeds two of the three following size criteria for two years in a row:

  • group turnover £10,2m (or £12,2m including intercompany sales).
  • gross assets £5,1m (or £6,1m including intercompany balances).
  • Average number pf employees across the gross not more than 50.

Also, some groups are not eligible to qualify as small by their nature. This includes groups where any entity is:

  • a MiFID investment firm;
  • a UCITS management company;authorised under the Banking Consolidation Directive or the Insurance Directives.an e-money issuer; or
  • listed in an EEA state such as listed on the London Stock Exchange.

It is therefore important to start planning now as opening stock may need to be verified and audit work may need to be done on the comparative numbers for the year to 31 December 2020 to avoid an audit qualification on the opening balances.

Advice should be taken now in preparation for the year ended 31 December 2021. Fell free to contact Tony Castagnetti at Belluzzo Audit Limited if you have UK subsidiaries and wish to understand further the requirements and legal obligations with regard to audit for the year ended 31 December 2021.

For further information on the changes generated by Brexit, please find the link to the book published by Sole 24 ore HERE .

 

  • Tony Castagnetti
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