Updated 17-Nov-20: Brexit implications for audit registration: what you need to know

UK audit registration – after the Brexit transition period

After 31 December 2020, audit registration in the UK will continue without interruption for individual statutory auditors (responsible individuals) registered by Chartered Accountants Ireland given the status of the Institute as a Recognised Supervisory Body (‘RSB’) in the UK, regardless of whether the responsible individual is based in the UK or Ireland. 

There will be no change to the UK audit registration of the majority of audit firms registered in the UK by Chartered Accountants Ireland regardless of whether the audit firm is based in Ireland of the UK.  Audit firms currently registered in the UK by Chartered Accountants Ireland can retain UK audit registration after 31 December 2020 if the UK firm ownership rules are met.  The ownership rules for a UK registered audit firm after 31 December 2020 will require that the majority of the voting rights on the ownership body and management body of the firm are held by:

• Individuals holding an audit qualification from a UK RSB (including Chartered Accountants Ireland)
• Audit firms approved by a UK RSB (including Chartered Accountants Ireland)
• Individuals who hold EEA qualifications, who have passed or applied to sit a relevant aptitude test by 31 December 2020

The change in the ownership rules impacts firms who count EEA qualified auditors (who are not qualified by a UK RSB) and EEA audit firms in their majority of qualified owners and managers.  From 1 January 2021 the qualified majority of owners and managers can only include EEA auditors (who are not qualified by a UK RSB) if the EEA auditors have applied for, or passed, a relevant aptitude test before 31 December 2020.

Irish audit registration – after the Brexit transition period

In advance of the original Brexit deadline of March 2019, the Institute shared [1] with its audit registered firms advice received from the Irish government and the Irish Auditing and Accounting Supervisory Authority (‘IAASA’) that auditors who are considered to be ‘UK based’ (we are still seeking clarification as to what this term means) would not be eligible to retain Irish audit registration in the event of a ‘hard’ Brexit.  Unless a Brexit agreement, addressing audit registration in Ireland, is reached by 31 December 2020 auditors will effectively be facing a ‘hard’ Brexit scenario with regards to Irish audit registration on that date.

On the basis of legal advice taken by the Institute, the Institute considers that it is not legally empowered to remove auditors from the Irish audit register at the end of the transition period. Therefore, as things stand at the time of writing, the Institute does not intend to remove auditors from the Irish audit register on 31 December 2020 or thereafter.  

Audit firms should be aware, however, that if there is a relevant change in Irish company law or a legally binding regulatory instruction to the Institute in that regard, the Institute may have no choice but to withdraw the Irish audit registration of auditors, and therefore audit firms, who are considered to be ‘UK based’. 

Re-registration

The Institute has been working with relevant stakeholders to explore ways to facilitate re-registration in Ireland of ‘UK based’ auditors in the event that circumstances change such that these auditors are removed from the Irish audit register as a consequence of Brexit and corresponding changes in Irish company law.  In those circumstances ‘UK based’ auditors would be considered to be third country auditors from an Irish perspective.

The Companies Act 2014 in Ireland provides for the approval of third country auditors as Irish statutory auditors where certain criteria are met.  These criteria include the existence of reciprocal arrangements regarding auditor approval between Ireland and the third country concerned as well as the completion of an aptitude test by the third country auditor.  The Companies Act 2014 also allows for exemption from that aptitude test to be granted in certain circumstances.  We understand that IAASA and the Financial Reporting Council (‘FRC’) in the UK are working on developing reciprocal arrangements which would support the operation of a regime in Ireland for approving third country auditors from the UK.   The Institute currently administers an aptitude test for third country auditors and is engaging with IAASA in relation to guidelines for granting exemptions from the aptitude test.

Statutory audit firms – Irish audit registration

In Ireland, a firm’s audit registration is dependent on the firm’s compliance with the eligibility criteria set out in section 1473 of the Companies Act 2014 and reflected in the Institute’s Audit Regulations at chapter 2.   Audit firms with Irish audit registration will need to be cognisant of possible implications for their compliance with those eligibility criteria should it transpire that events related to Brexit as described above impact on the eligibility for responsible individual (‘RI’) status in Ireland for those signing audit reports for Irish registered companies and for audit approval of individuals in the ownership and management structure of the firm.

What does this mean for a ‘UK-based’ audit firms registered by the Institute?

If you are a an audit firm included on the Irish audit register by the Institute and are based in the UK, the following is relevant:

• The Institute does not currently expect to withdraw your Irish audit registration on 31 December 2020 as a consequence of Brexit.
• The Institute may nonetheless be forced, by a change in Irish company law or a regulatory instruction, to withdraw your Irish audit registration some time after 31 December 2020.
• If your Irish audit registration is withdrawn as a consequence of the circumstances above, you will be able to apply for re-registration in Ireland.Re-registration of an audit firm would require the approval as third country auditors of the firm’s responsible individuals signing Irish audit reports as well as ensuring that the ownership structure of the firm is composed of the appropriate number of individuals eligible for approval in Ireland.
• All third country auditor applicants must either sit and pass an aptitude test or be granted an exemption from that aptitude test.The aptitude test consists of two exams being corporate and business law and tax law as they pertain to statutory audit in Ireland.
• It is likely that exemption from the aptitude test could only be granted to third country auditors who can demonstrate that they have sufficient recent experience of performing Irish audit work and have undertaken appropriate Irish relevant audit CPD.
• It is important to note that it is not clear to the Institute what factors determine whether an auditor is ‘UK based’ (for example residential address of the firm’s partners or responsible individuals? business address of the firm?).We have raised a number of queries with IAASA in this regard.

What next?

Unfortunately the uncertainties created by Brexit in recent years remain unresolved.  The Institute continues to engage with government departments in Ireland and the UK, with IAASA and the FRC and with other recognised accountancy bodies to prepare for the possible outcomes of Brexit with regard to audit registration.   The Professional Standards Department will keep audit compliance principals informed of any developments arising.

Auditors and audit firms who may be ‘UK based’ and who currently undertake Irish audit engagements should continue to be mindful of the possible implications of Brexit for their audit registration in Ireland and plan for scenarios that may arise for auditors and their Irish clients in 2021.

Further information – Accountancy Ireland Podcast

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