This summary explains the implications for accounting, corporate reporting and audit in the unlikely event that the UK leaves the EU in March 2019 with no agreement in place, as documented in the notice issued by the UK government.
Position up until 29 March 2019
The rules as they stand now continue and there will be no change.
What happens after 29 March 2019 if there is no deal?
The UK government’s intention is to create minimal disruption and as far as possible, try to maintain the same laws and rules that are currently in place. However, some changes are inevitable.
Accounting and corporate reporting
Overall, the corporate reporting regime will be unchanged; however, certain changes are necessary and will be made to reflect the fact that the UK is no longer a Member State.
Audit
The rules relating to audits of UK companies operating solely within the UK will remain the same, but there will be additional requirements relating to the audits of UK companies operating cross-border, and to the provision of audit services cross-border.
The UK will unilaterally provide a transitional period in the field of audit until the end of December 2020. During this transitional period, individuals will be able to continue to apply for their EU audit qualifications to be recognised in the UK and EU auditor registrations will continue to be recognised in the UK.
What are the implications of this?
Accounting and corporate reporting
UK incorporated subsidiaries and parents of EU businesses will continue to be subject to the UK’s corporate reporting regime. However, certain exemptions in the Companies Act 2006 relating to the preparation of individual accounts will no longer be extended to companies with parents or subsidiaries incorporated in the EU. It is not clear yet whether this will also apply to the guarantee statement filed on form AA06 enabling UK subsidiaries with EEA parents to take advantage of audit exemption in the UK.
A UK company is currently exempted from having to prepare individual accounts if it is dormant, and part of a group of companies with an EU parent company that prepares group accounts. This exemption will continue to apply after exit only if the parent company is established in the UK.
UK businesses with a branch operating in the EU will become third country businesses and will be required to comply with the specific accounting and reporting requirements for such businesses in the Member State in which they operate. Complying with the accounting and reporting requirements of the Companies Act 2006 may no longer be accepted by those Member States as sufficient.
UK companies listed on an EU market may also be required to provide additional assurance to the relevant listing authority that their accounts comply with International Financial Reporting Standards as issued by the International Accounting Standard Board. This will need to be done in accordance with EU third country requirements. In the short term, this could lead to changes to the compliance statements that are required within the annual accounts submitted to listing authorities.
As stated above there will be changes to reporting requirements of certain UK and EU companies. This could lead to a need for changes to systems to capture additional information for reporting purposes as well as obtaining additional agreements and assurances from the relevant listing authorities ahead of the reporting dates.
Audit
In order to be able to sign audit reports on behalf of an audit firm approved in the UK, the auditor must be in possession of a qualification recognised in the UK.
Post 29 March 2019, a transitional period will exist allowing auditors with EU qualifications to continue to be recognised in the UK until the end of December 2020. During this transitional period they can undertake an aptitude test but at the end of the transitional period EU auditors will cease to benefit from automatic recognition of their qualifications in the UK and may no longer be offered an aptitude test. They could then no longer practice as auditors in the UK. For Italian auditors signing audit reports in the UK, this means they will need to undertake the aptitude test to continue to be recognised as UK registered auditors.
EU businesses seeking to raise capital by issuing shares or debt securities on a regulated market in the UK i.e. AIM will need to be audited by an auditor registered with the UK Financial Reporting Council. These audits will need to be included in a cycle of inspections, in which the Financial Reporting Council of the UK will be able to visit the registered auditor in the EU Member State where the business is incorporated and review their work until such time that the Member State is recognised in the UK as having an equivalent audit regulatory framework.
In a ‘no deal’ scenario, an individual’s UK audit qualification may no longer be recognised in an EU Member State. There are exceptions such as Ireland where qualifications used are those offered by UK qualifying bodies and so they will continue to be recognised as professional qualifications. Similar arrangements may apply for some UK qualifications in some other Member States.
Similarly, audits of UK businesses seeking to raise capital by issuing shares or debt securities on a regulated market in the EU will need to be audited by an auditor registered as a ‘third country auditor’ in the EU Member State in which the market operates. The audit will then be liable to inspections by the recognised authority for that market.
Actions necessary for businesses and other stakeholders
Accounting and corporate reporting
Subsidiaries and parents of EU companies established in the UK will need to make themselves familiar with the exemptions in the Companies Act 2006 relating to accounting and reporting requirements that will no longer be extended to UK companies with parents or subsidiaries incorporated in the EU.
Branches of EU companies established in the UK will become subject to additional requirements under the overseas companies regime, and after exit will be subject to the same accounting and reporting requirements as non-EU companies that have a branch here. The management of such branches should familiarise themselves with the additional reporting requirements that will be applicable to them.
UK businesses may wish to make themselves aware of the specific accounting and reporting requirements of any Member State in which they operate. Similarly, EU businesses may wish to make themselves aware of the specific accounting and reporting requirements of the UK that will apply post 29 March 2019.
UK businesses listed on an EU market and EU businesses listed on a UK market may wish to make themselves aware of the changes to the requirements for listed entities.
Audit
Individuals with EU qualifications who are not yet recognised by the UK will want to make themselves aware of further details on the transitional period for automatic recognition of audit qualifications and the continued availability of the aptitude test, as referenced above. The test is available from recognised supervisory bodies for auditors the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants of Scotland, the Association of Chartered Certified Accountants and Chartered Accountants Ireland. Individuals who are already recognised do not need to take any further action.
EU businesses operating in the UK seeking to raise capital by issuing shares or debt securities on a regulated market in the UK may wish to consider securing the services of an auditor registered with the Financial Reporting Council.
An EU audit firm wanting to be an auditor of an EU business with debt or equity traded on a UK market will need to register as a ‘third country auditor’ in the UK.
Holders of a UK audit qualification who want to provide audit services in a Member State will need to understand how their qualifications will be recognised in that Member State. This will govern their ability to sign audit reports on behalf of an audit firm approved in that Member State.
UK businesses who wish to raise capital by issuing shares or debt securities on a regulated market in the EU may wish to consider securing the services of a ‘third country auditor’ registered in the relevant Member State.
An audit firm wanting to be an auditor of a UK business with debt or equity traded on an EU market will need to register as a third country auditor in the Member State in which the securities market is situated or operates.
