Brexit and its impact on Accounting and Corporate Reporting and the appointment of Auditors
On 21st February 2019 BEIS (the Department of Business, Energy & Industrial Strategy) and the Financial Reporting Council jointly issued two letters of guidance in preparation for a potential "no deal" Brexit scenario.
One letter relates to accounting and corporate reporting requirements and the other to the appointment of auditors , in both cases where there is a UK-EEA element, and each of the letters seeks to provide the assurance of continuity where it can but points out the changes that will have to happen in any event.
In general, the accounting and corporate reporting requirements will remain the same as before where they relate to accounting periods commencing prior to exit day ( currently 29th March 2019 at 11pm UK time) but will need to be re-aligned to local UK and EEA reporting requirements for accounting periods commencing after exit day.
One of the biggest changes may be that after exit day EEA-incorporated companies with a UK incorporated subsidiary will no longer be entitled to claim certain UK exemptions from the preparation and filing of accounts for accounting periods beginning after exit day. The example is given that , after exit day, an intermediate UK parent company with an immediate EEA-incorporated parent will no longer be regarded as automatically exempt from producing group accounts.
Another change is that, for accounting periods beginning after exit day, UK- incorporated dormant companies with EEA-incorporated companies will be required to be prepare individual accounts and file them at UK Companies House.
Other exemptions lost for accounting periods beginning after exit day relate to certain exemptions from producing non-financial information statements and from restrictions on the alteration of accounting reference dates.
On the appointment and recognition of Auditors, the relevant letter honestly makes the point that following Brexit the performance of the audit function will be subject to the local laws and professional requirements of each EEA state where an audited company is based - without , however, going into too much detail about the different permutations that may arise ( for instance, concerning companies which are incorporated in one EEA state but headquartered in another). The letter starkly points out that persons seeking to act as auditors in EEA members states may be required by local laws to take professional aptitude tests and sit professional examinations in those states - even in Ireland, with which the UK has a close historical relationship.
Where it is a question of EEA Auditors coming to the UK, the letter does provide the re-assurance that existing registrations of individual EEA auditors as UK statutory auditors will continue after the UK's exit from the EU, at least up to and including 31st December 2020. The letter expresses the hope that mutual recognition agreements will be in place after that date that will facilitate cross- border recognition of auditors' qualifications between the UK and the EEA.
The two letters are intended to supplement UK statutory instruments and UK Government Technical Notices that have already been put in place or issued and do show that some thought leadership is indeed being given to the colossal implications of Brexit
