- CURRENT POSITION
As all parent companies established in an eea state will know, s479a of the companies act 2006 permitted their uk subsidiary to be exempt from the requirements of the companies act relating to audit if the following were all met:
- All of the members of the subsidiary agreed to the exemption in respect of the financial year in question;
- This needed to be evidenced in the form of a written notice of the agreement by the members of the company and filed with the subsidiary’s financial statements;
- The eea parent guaranteed all outstanding liabilities of the subsidiary at the end of the financial year under s479c of the companies act 2006 in respect of that year;
- This statement of guarantee is in the format of a form from companies house which is filed with the uk subsidiary’s financial statements for the year in question;
- The eea parent prepared consolidated, audited financial statements which included the subsidiary;
- These consolidated, audited financial statements were translated into english, included within them a note making clear reference to the s479a audit exemption taken and filed at companies house together with the uk subsidiary’s own financial statements;
- WHAT IS THE POSITION POST 31 DECEMBER 2020?
The uk officially left the eu on 31 january 2020 but despite this, the s479a audit exemption continues to be available if it is a non-uk parent from an eea state which currently prepares the consolidated, audited accounts and provides the guarantee. Effectively nothing changes for periods commencing before exit day (currently defined as the end of the transition period which is 11pm on 31 december 2020).
Various sets of amendments were made with the intention of ending the exemption on exit day unless there was a withdrawal agreement with a transition period. The withdrawal agreement came to pass in january 2020 and so the exemption will now cease for accounting periods commencing from the end of the transition period i.e. 11pm on the 31 december 2020.
This means that all uk subsidiaries with an eea parent (such as a parent company in italy), where the group does not qualify as small under the uk audit exemption rules, will no longer be able to take advantage of 479a for the financial statements for the year ended 31 december 2021.
Therefore, groups with uk subsidiaries that do not meet the small group criteria for the uk should take note now as stocktakes at the end of the current year may need to be planned with auditor attendance. Unless very good systems and controls are in place that would allow stock held at 31 december 2020 to be verified and audited without attending the end of year count, an audit qualification on opening stock will result.
