Brexit and audit

Despite the UK officially leaving the European Union (EU) on 31 January 2020, during the transition period, there has been little practical change to audit requirements. The transition period came to an end at 11pm on 31 December 2020. In this blog we take a look at some of the key audit changes.

For periods commencing on or after 1 January 2021

The following changes take effect for periods commencing on or after 1 January 2021.

Audit exemption – ineligible groups

A company within an ineligible group is not entitled to the small companies audit exemption conferred by s477 of the Companies Act 2006, even if the group would otherwise be small. There have, however, been changes to the meaning of an ineligible group such that a group will no longer be ineligible simply because it has a member which is traded on an EEA regulated market.

Audit exemption by parent guarantee

Many companies with UK or EEA parents currently take advantage of audit exemption by parent guarantee under s479A of the Companies Act 2006. This exemption changes such that it will only be available with a UK (not EEA) parent guarantee. Entities previously relying on EEA parents for the exemption will now need to be audited unless another exemption applies.

Basis of preparation – IFRS

Entities reporting under IFRS will need to apply UK-adopted IFRS rather than EU-adopted IFRS. Auditors will need to update references to “International Financial Reporting Standards (IFRSs) as adopted by the European Union” accordingly. At the end of the transition period, UK-adopted IFRS consisted of all international standards already adopted in the EU, so there will be little practical impact other than a change in wording in the short term at least.

Other considerations

Auditors of groups with a cross-border presence will need to consider whether they will have appropriate access to records and working papers to fulfil their responsibilities.  

Audit firms should also consider the impact of the new 2021 audit regulations which reflect the changes in the relationship between the UK and the EU following the end of the transition period.

How we can help

If you would like to learn more, please book onto one of our update courses. More details can be found on our 2021 training Programme.

Find out more about our Brexit news, training and products.