Professional qualifications

Brexit implications for audit registration: what you need to know

On 31 January 2020 the UK left the EU in accordance with the terms of the withdrawal agreement and entered a period of transition until 31 December 2020.  This provided a short period of certainty for audit registrations in Ireland and the UK which continue uninterrupted by Brexit until at least the end of the transition period.  All possibility of an extension of the transition period ended on 30 June 2020 when that date passed without the UK government seeking any such extension from the EU.  As yet another key Brexit date approaches on 31 December 2020, auditors in Ireland and the UK need to be aware of the possible scenarios which might arise in relation to audit registration after the transition period.

UK audit registration – after the Brexit transition period

After 31 December 2020, audit registration in the UK will continue without interruption for audit firms registered by Chartered Accountants Ireland given the status of the Institute as a Recognised Supervisory Body in the UK, regardless of whether the audit firm is based in the UK or Ireland.

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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1] Letters to audit compliance principals in November 2018 and again in February 2019. 

Regulatory Bulletin February 2019 

The Brexit issue: mutual recognition of professional qualifications

The European Professional Qualifications Directive provides recognition of regulated professions such as architects, doctors, civil engineers and auditors.

This directive allows people in these professions to move freely across the EU/EEA and have their qualifications recognised by passing a local aptitude test. The Audit Directive makes further provisions for auditors. These arrangements allow Ireland, and Irish professionals, to support international businesses effectively.

Risks

  • If the UK does not remain within the EEA, professionals potentially face significant challenges in  terms of recognition and mobility, which may increase skills shortages

  • Registered auditors may not have inter-jurisdictional audit rights without specific agreements, which could be an impediment to cross-border business

  • Irish auditors may in future need to undergo additional work experience and examinations in order to work as auditors in the UK

Recommended actions

  • If the UK remains outside the EEA, Ireland should be part of the EU team negotiating a recognition policy for professional qualifications

  • Chartered Accountants Ireland, as an all-island body with 26,500 members, has a potential unique role to play and is willing to brief and support Irish negotiators

  • As a contingency, a third country agreement should be negotiated by the UK Financial Reporting Council and the Irish Auditing and Accounting Supervisory Authority (IAASA). This would require that all recognised Institutes gain access rights in both countries and facilitate present mobility

Guidance in relation to audit experience and impending Brexit

As we are all facing Brexit and the uncertainty this creates, the Institute has written to training firms to advise them regarding the specific implications for trainees in relation to audit experience and potential audit rights post Brexit should a no deal Brexit arise.  

Should a final agreement along the line of the proposed Brexit/EU agreement be in place, the good news is that the current regime (status quo) will effectively remain in place and provide an opportunity to agree new arrangements.  However this appears to be unlikely at this time.

Read the letter sent to training firms.

Read more about the implications of Brexit for audit registration here.

Important Notice re Audit Experience and Brexit

The attached notice is being issued by the Director of Education  to all trainees to provide assurance regarding the Chartered Accountancy qualification and Brexit.

It is important to be aware that while Brexit will not impact on the overall qualification, it is in the area of audit experience that the matter becomes more complicated and the main purposes of this notice is to provide  additional clarity  for those  trainees working in practice gaining audit experience and  how Brexit may impact. 

To access this document, please click/tap on the following hyperlink: Link to guidance note for trainees audit experience & Brexit