The impact of Brexit on statutory audits

Many people have been apologising for mentioning the ‘B’ word recently. I’m apologising for not apologising.

On the topic of Brexit, there are some important considerations for PM+M as auditors that you should be aware of as well as, critically, information you should know about as a business owner.

One of PM+M’s values is Quality and we pride ourselves on providing a high quality audit every time. Therefore, we want to let you know about how these factors might impact your company/group’s audit.

We need to understand your business

We are required, in line with our professional auditing rules, to understand your business. This will therefore include the potential impact on your business and your accounts of any potential Brexit-related risk factors. These might be economic, regulatory or industry specific. For example, considering existing supply chains, lead times on stock deliveries and possible additional duties.

Going concern status

As a director, you are required to review the going concern status of your business by considering forecast financial performance and the ability of your business to meet its liabilities for the foreseeable future. Depending on the industry in which you operate, there may be significant factors arising from Brexit which could impact your financial results and stability of your business, and you should ensure you consider these.

As your auditors, we will review these considerations and it may be appropriate to include additional wording in your directors’ report, strategic report and/or accounting policies to explain the considerations and assumptions made. Equally, as well as potential risks that your business may need to face, there may be significant opportunities. Where your accounts are required to include a strategic report, this should be a balanced view of what is going on in your business, how risks are being managed and how opportunities are being sought.

More thinking required

Additional work may be required around certain accounting areas, including:

  • the impairment of assets
  • whether long-term contracts will remain profitable
  • requirement for restructuring provisions.

Impact on group audits and exemptions

Since 2012, an exemption from statutory audit has been available for qualifying UK businesses whereby its parent company provides a guarantee of the liabilities of the subsidiary company, under the law of an EEA state.

Post Brexit, subject to change in UK law in the Companies Act, this will only be available to subsidiaries of UK parent companies. The impact of this will be that numerous UK companies will now be required to complete a statutory audit in the UK.

In summary, there remains significant uncertainty as to how Brexit will impact our businesses, PM+M included. Being resilient and open to discussion around risks and opportunities will be critical to continuing to run a successful business.

If you have any queries around how Brexit might impact your financial reporting, forecasting or the financial management of your business, please contact Helen Clayton on 0161 641 8684 or email helen.clayton@pmm.co.uk.

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