101 UK Brexit Notes

Connemara Programme October 16 2018 pg. 171 Accounting and audit if there’s no Brexit deal Purpose This notice 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. For the purpose of this notice, ‘UK company’ means a company incorporated in the UK and includes a subsidiary incorporated in the UK regardless of the nationality of its parent but does not include a UK branch of a company incorporated elsewhere. An ‘EU company’ means a company incorporated in the EU regardless of the nationality of its parent but does not include an EU branch of a company incorporated elsewhere. This notice covers: accounting and corporate reporting , audit Before 29 March 2019 The UK currently follows the EU rules and regulations that fall under the areas of accounting, corporate reporting and audit. These rules and regulations set out how companies and other legal entities report on their financial activity, corporate governance arrangements and how those reports are audited. This is reflected in UK law mainly through the Companies Act 2006 and regulations made under that Act. For other types of legal entities which have their own specific legislation, this generally mirrors the legislation for companies (albeit with modifications) and therefore much of this notice will be relevant to these entities also. However, this notice is expressed in terms of the effect for companies as this is the most commonly used corporate form. After March 2019 if there’s no deal The government will ensure that the UK continues to have a functioning regulatory framework for companies and that, as far as possible, the same laws and rules that are currently in place continue to apply. This will be done by using the powers in the EU Withdrawal Act 2018 to correct deficiencies in our statute book arising from our exit from the EU. The UK government will continue to work with the Scottish Government, Welsh Government and the Northern Ireland Civil Service, to ensure the future company law regime works across the UK. Accounting and corporate reporting The corporate reporting regime will be unchanged in many respects; however, certain changes are necessary to reflect that the UK is no longer a Member State. Audit The rules relating to audits of UK companies operating solely within the UK will be unchanged, 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. Additionally, EU audit firms will continue to count towards the majority of appropriately qualified persons test for owning UK audit firms. These arrangements are set out in more detail in the sections below. Implications 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. For example, 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 only continue to apply after exit 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 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 treated 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 which are required within the annual accounts submitted to listing authorities. As set out above there will be changes to reporting requirements which will have implications for how UK accounting and company secretariat service providers interact with their clients. 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 their reporting date. 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. The UK will provide individual auditors with EU qualifications with a transitional period, from exit until the end of December 2020, during which they can apply to be recognised as auditors in the UK subject to passing an aptitude test. 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. However, EU qualified auditors who were recognised as a result of an aptitude test process, which is begun before the end of the transitional period, will continue to be recognised. Auditors with Irish qualifications will not need to take an aptitude test as the