Brexit and Audit

By Katherine Rose, Citroen Wells Chartered Accountants

The end of the Brexit transition period has resulted in significant changes to how businesses operate. Combined with the impact of COVID-19, this presents unique challenges for UK auditors.

Considerations for Groups

UK companies that qualify as small are eligible to use several accounting, auditing, and filing exemptions. Companies that are part of an “ineligible group” are excluded from the small-companies regime. From January 2021, the definition of an ineligible group is less restrictive, and more companies could qualify as small.

A UK intermediate parent company was previously exempt from preparing group accounts when the company was included in the consolidated accounts of an European Economic Area (EEA) parent. This exemption will no longer be available. However, the exemption may still be taken if the parent company prepares its consolidated accounts in an equivalent manner to UK GAAP.

When carrying out group audits that have components situated in both the UK and EU, auditors may need to consider the need for work permits and issues such as data sharing.

Audit Regulations

New UK Audit Regulations are now in place. The major changes involve the qualification of EEA auditors and firms that could affect responsible individual status and ownership tests. No EEA qualification, with the exception of Ireland, is automatically recognised for UK audit registrations until mutual recognition is established. An individual holding an EEA qualification is only recognised where the qualification is deemed by the UK body to be comparable.

Industry-Specific Audit Risks

Understanding Brexit risk factors is particularly important considering the additional risk factors of COVID-19. Entities and auditors will need to analyse and understand the combined impact of these two significant economic events. When understanding the entity and its environment, auditors will be required to consider industry risks applicable to the entity:

  • Does the industry rely on fast turnaround of imports or exports or on EU supply chains?
  • Does the industry rely on access agreements or licenses from the EU to operate or sell within the EU?
  • Is the industry impacted by EU quotas or reliant on tax, grant funding or other incentives from the EU?

Entity-Specific Audit Risks

In addition to the industry risk factors outlined above, auditors will need to consider the potential impact of entityspecific Brexit-related risk factors:

  • Will the business be able to continue to operate in the EU without changes to operations?
  • Does the entity rely on UK staff regularly working in the EU or vice versa?
  • Are products and services subject to EU regulatory and compliance law?
  • Does the entity rely on EU labour, in particular to fill business-critical roles?
  • Will the entity face increased administration costs, tariffs, and duties relating to importing from or exporting to the EU?
  • Do the pressures of Brexit (and COVID-19) increase the risk of fraud?

Legal and Compliance Issues

Auditors will be required to assess the risk of non-compliance with laws and regulations. Many laws and regulations have been amended as a result of Brexit. There are changes to data protection and employment regulations that may impact businesses. Additionally, some important changes in UK VAT rules from 01 January 2021, include:

  • “Postponed accounting” for import VAT on goods brought into the UK;
  • VAT, and in some cases import customs duties, becoming due when goods arrive in the EU from the UK;
  • Consumers in EU countries receiving a supply of services from a UK business no longer being charged UK VAT;
  • All supplies of digital services to consumers in EU member states are liable for VAT in the consumer’s member state. The annual threshold for cross-borders sales of digital services to EU consumers no longer applies. VAT will be charged at the rate where the customer is based and those sales declared to the relevant EU member state.

COVID-19 has resulted in many clients and auditors being unable to devote time to Brexit preparation. Auditors are going to be forced to think hard about what they do, how they do it, and re-evaluate the risks to business.


Katherine Rose

Katherine Rose

GGI member firm
Citroen Wells Chartered Accountants
Auditing & Accounting, Tax, Advisory, Corporate Finance, Fiduciary & Estate Planning
London, UK
T: +44 20 7304 2000
E: This email address is being protected from spambots. You need JavaScript enabled to view it.
W: citroenwells.co.uk

Citroen Wells' partners include specialists with years of practical knowledge assisting their international clients, including the financial problems facing property investors, dealers, and developers. They offer a range of high-quality accounting, tax, financial, and business services.

Katherine Rose is responsible for quality control, compliance, and technical matters at Citroen Wells. She also manages a portfolio of audit clients, with 15 years’ experience working with businesses across many industries, focussing on international groups and consolidations under UK GAAP and IFRS.


Published: Auditing, Reporting & Compliance Newsletter, No. 05, Spring 2021 l Photo: coward_lion - stock.adobe.com

 

Ggi Logo 150x109px

GGI Global Alliance AG

Sihlbruggstrasse 140
6340 Baar
Switzerland

Contact

T: +41 41 7252500
F: +41 41 7252501
This email address is being protected from spambots. You need JavaScript enabled to view it.
www.ggi.com