Brexit and the impact on auditing rules
In the lead up to, and following, the UK’s exit from the EU, the Government released several statutory instruments which impacted the auditing rules.
The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019
The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (SI 2019/177) was passed by the Government on 1 February 2019. This was amended and some details corrected by SI 2019/1392, issued on 23 October 2019, and SI 2020/108, issued on 3 February 2020, both with a similar title.
Subsidiary companies exempt from audit
The main change as a result of these Brexit SI’s is made to CA 2006, s. 479A. Following the issue of SI 2019/1392, a subsidiary entity will only be able to take advantage of the audit exemption if ‘its parent undertaking is established under the law of any part of the United Kingdom’. This means that subsidiaries will be able to take the audit exemption only if they have a UK parent company.
Companies eligible for exemption under s. 479A with financial years ending during the transitional period up to 31 December 2020 can be exempt from audit if their parent company is in a country subject to either UK or EEA law.
These consist of removing references to EU or EEA law or authorities and replacing them with UK equivalents. The main changes are as follows:
Maximum engagement period
CA 2006, s. 494ZA – all selections of auditors following an extended engagement period must comply with CA 2006 rather than the Audit Regulation (although the Audit Regulation forms part of retained EU law under the European Union (Withdrawal) Act 2018 and will therefore continue to apply in the UK as a domestic instrument).
CA 2006, s. 494A – the rules on audit committees are governed by the Financial Conduct Authority or the Prudential Regulation Authority as appropriate, instead of the EU Audit Directive.
Status of statutory auditors
CA 2006, Pt. 42 (s. 1210–1264) – there are changes to the status of statutory auditors as a result of Brexit. For example:
- there will be no difference, unless this is negotiated between the UK Government and the EU, between EEA auditors and ‘third country auditors’ as defined by CA 2006, s. 1241;
- a UK audit qualification may not be recognised by EEA countries, and vice versa;
- UK companies will need to be audited by a UK-registered audit firm. An individual UK-registered auditor will need to sign the audit report on behalf of the firm.
A senior statutory auditor will now be defined as ‘the individual identified by the firm as senior statutory auditor in relation to the audit in accordance with … the relevant guidance issued by the Secretary of State’ or a body appointed by them (s. 504).
Appointment of auditors
UK companies will be required to appoint a UK regulated audit firm to complete their audits. A UK registered auditor will sign the audit report on behalf of the firm when it is due.
Audit of the EEA company
EEA companies with a UK listing will have to ensure that their EEA auditor is registered either as a UK statutory auditor, or is registered as a third country auditor.
There will be no implications for EEA companies where they are audited by UK auditors.
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