On February 21, the United Kingdom's (UK's) Department for Business, Energy & Industrial Strategy and the Financial Reporting Council (FRC) released a letter and frequently-asked-questions (FAQs) for auditors and audit firms. The letter and FAQs advised audit firms of actions they should be considering in connection with a 'no deal' Brexit on March 29, 2019 (that is, the possibility that the UK will exit from the European Union (EU) with no withdrawal agreement that would include audit regulation). The letter summarizes key actions firms might need to take to be able to continue to operate either in the UK or in EU countries or both. Issues addressed in that document included:
- Businesses that previously were Public Interest Entities (“PIEs” - banks, building societies, insurers and issuers of securities on UK regulated markets) only because they issue securities on EEA (European Economic Area) regulated markets, will no longer be treated as PIEs for the purpose of the application of the EU Audit Regulation. This will affect the application of a range of measures, including mandatory retendering and rotation of auditor appointments, for financial years beginning on or after exit day.
- Application of EU rules related to non-audit services on the EU's "black list" (Article 5).
- Other issues raised in the letter include ownership of firms, work paper access, group audits, registration as a statutory auditor in the UK, the ability to sign audit reports and registration as a third country auditor and as a statutory auditor in EEA states.
The attached issue of Audit Conduct NEWS includes a summary of the EU rules.
On March 5, the FRC released a position paper "Post Implementation Review of the 2016 Auditing and Ethical Standards: Next Steps" (the paper), which also addresses the more immediate actions firms should consider to prepare for a possible no-deal exit from the UK on March 29; on that date, requirements of The Statutory Auditors and Third Country Auditors (Amendment)(EU Exit) Regulations 2018 will apply. As noted in the March 5 letter:
Appendix 1 to the paper sets out the changes this will bring about to the FRC Ethical Standard as a result. The main issue for firms to address is that the prohibitions on the provision of certain non-audit services in paragraph 5.167R of the Ethical Standard will apply to all components of a group audit regardless of where in the world that component is located, where the audit of that component is undertaken by a member of the auditor’s network firm.For example: in the case of an entity with a 31 March year end, the auditor must ensure that any prohibited non-audit services provided by its network firms to components of a group audit located outside of the European Union, are terminated before the start of the 31 March 2020 year-end financial year (i.e. by 1 April 2019).
