How will Brexit impact audit and accounting under company law?
Brexit uncertainty continues following parliament’s ‘No’ vote on the proposed deal, and either way Brexit is set to affect just about every aspect of UK business – including audit and accounting rules. Here, James Waller CA looks at exactly what those affects may be.
As things currently stand, ‘exit day’ is scheduled for Friday 29 March 2019, although that date could still slip. The government has issued the draft statutory instrument (SI), Accounts and Reports (Amendment) (EU Exit) Regulations 2018, which effectively cuts the UK’s ties with the EEA (European Economic Area). It proposes changes to the Companies Act 2006, making EEA states third countries under UK law, and will be enacted unless further agreement is reached over reciprocal status.
Right now that’s unlikely, with more pressing matters such as the Irish border taking priority. However, if enacted the instrument will make some of the following key changes.
Small entity qualification
Under the proposed changes, an entity can only qualify as a small entity if it is not admitted to trading on a UK regulated market. This would permit entities who are admitted to trade on EEA regulated markets, but otherwise meet the small company size criteria, to prepare and file their accounts under the small entities regime.
Exemption for filing consolidated accounts
The SI amends both Sections 400 and 401 of the Companies Act 2006 to change all references to ‘EEA’ to cover the UK only. Where a UK company with a French parent was previously exempt under Section 400 from preparing consolidated accounts, they will now be exempt under section 401.
Preparing and filing dormant company accounts
A dormant company will only be exempt from preparing and filing accounts if they have a guarantee from a UK parent. Previously, this exemption included EEA parents too.
Audit exemption of subsidiary entities
The current audit exemption for subsidiaries of EEA parents, where the parent company agrees to guarantee the liabilities of the subsidiary, will only be available to subsidiaries of UK parent companies. If enacted, a considerable number of UK subsidiaries of EEA parent companies will now be required to complete an audit in the UK.
Third country audit legislation
The FRC recently opened a consultation on changes to the Third Country regulations. The changes proposed will expand the organisations this covers to include auditors in the EEA, but will not amend the fees paid.
The government has also issued additional pieces of guidance on how companies should operate in the event of a no-deal Brexit, on topics ranging from competition, insolvency and intellectual property, to the recognition of professional qualifications.
It remains to be seen if and when these changes will actually come into force, and whether further discussions will change the current proposals. Keep up-to-date with Brexit accounting news as it happens with Croner-i, where the team will be following developments, reporting the latest news, and updating guidance and commentaries.