News

26 June 2018

Implications of Brexit on cooperation within the European audit profession

Accountancy Europe unites 51 professional institutes from 37 countries that represent 1 million professional accountants, auditors and advisors. We represent organisations from all 28 European Union (EU or EU 28) Member States, including five institutes from the United Kingdom (UK).

 

Cooperation serving market needs

Our profession cooperates extensively throughout the EU to serve the needs of businesses, their stakeholders and investors, underpinning the integrity and stability of markets. This is especially the case in the field of audit of companies’ financial statements as per the Statutory Audit Directive (2014/56/EU).

Brexit raises the prospect of disruption and adverse consequences in the provision and regulation of statutory audit. Unless appropriate arrangements between the EU 27 Member States (EU 27) and the UK are made in due time, this will impact individual businesses as well as the market overall. In particular, there are risks relating to legal uncertainty, especially in relation to the validity of audit reports, as well as a proliferation of overlapping regulatory requirements.

Appropriate arrangements between the EU 27 and the UK could provide a favourable regulatory framework for the European audit profession to continue to cooperate.

Cross-border activity within the EU is based on the European Single Market of capital, goods, people and services, which results today in:

  • around 300 companies from the European Economic Area are issuers of securities on UK regulated markets
  • approximately 120.000 companies have parent and subsidiaries across the UK and the other EU 27 Member States
  • a significant number of companies, often small and medium-sized entities (SMEs), have operational, commercial or other business ties in the EU 27/UK

 

Specific concerns

To serve these companies, the EU regulatory framework for statutory audit makes it easier for EU auditors and audit firms to cooperate and perform EU-wide audits.  This contributes to the quality of companies’ corporate reporting, especially in cross-border groups, throughout the EU.

Appropriate arrangements for statutory audit in the EU-UK withdrawal agreement and for the future EU-UK relationship are needed to address the following specific concerns because:

  • approval and registration between the EU 27 Member States and the UK would no longer be on the ‘home-country’ basis
  • audit working papers and other documents from the EU 27 Member States and their competent authorities could not any more be transferred to, accessed in and maintained in the UK and its competent authority and vice versa
  • inspections or quality assurance reviews in the EU 27 could no longer be based on the principle of ‘home-country’ regulation and ‘host-country’ oversight in the UK and vice versa. Duplicating onerous and costly audit inspections by both home and host competent authorities would not be avoided any more
  • EU 27 provisions that facilitate cooperation between competent authorities in relation to investigations into and sanctions for inadequate execution of audits would no longer apply in the UK and vice versa
  • competent authorities of EU 27 Member States, but not the UK, would continue to be members of the Committee of European Audit Oversight Bodies (CEAOB), including colleges of supervisors. The EU 27 and UK would not further cooperate on matters from cross-border audit inspections to investigations and sanctions

The absence of these provisions would mean there is no longer any legal basis for a (group) audit report issued by an EU 27 auditor to be accepted as valid for an issuer on UK regulated markets.

A group listed in the UK would either have to be audited by a UK auditor or a new mechanism would be needed for the UK to ‘recognise’ non-UK auditors in this context. Such a new mechanism could possibly be in the form of complex and potentially divergent bilateral arrangements between individual EU 27 Member States and the UK.  Vice versa, the audit report of a UK group auditor of an EU company would no longer be valid for a listing on any of the EU 27 regulated capital markets unless similar mechanisms are put in place.

Without pre-empting any political decision in relation to the UK’s withdrawal agreement, transitional arrangements and the future EU-UK relationship, Accountancy Europe wishes to see appropriate arrangements between the EU 27 and the UK. Such arrangements could provide a conducive regulatory framework for the European audit profession to continue to cooperate effectively and efficiently in the provision of statutory audit. A decision on the equivalence and adequacy of the UK regulatory framework for statutory audit should be considered as part of the process to reach such appropriate arrangements.


For any enquiries: Laura Buijs

 

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