Why a no-deal Brexit could bring problems for some accountants

November 5th, 2018

It has not been a great year for some of the bigger beasts of the accountancy world and, in particular, the auditing arms of those firms. First of all there has been a number of high-profile corporate collapses with insolvency proceedings following just a few months after the accounts had, apparently, been blithely signed off and a tick placed in the “going concern” column. Going concern? Hmmm; insert opinion here ___________________.

Now along comes the Department for Exiting the EU with a warning that under a no-deal Brexit there would be no mutual recognition of professional qualifications, and auditing rules would need to be altered.

This would go down like a raided pension fund in some accountancy offices – let me explain why. As an Insolvency Practitioner I currently benefit from existing cross-border arrangements with the European Union for recognition of my qualifications as an IP in the UK. This allows me, and my fellow IP professionals, to deal with insolvency matters within an EU member state, including through any Brexit transition period, providing a “deal” is done.

A no-deal Brexit would put an end to that for both IPs and auditors. As UK insolvency legislation is not derived from EU law, the effect of Brexit on the insolvency of entities domiciled and trading only in the UK, and upon domestic insolvency case law, will be less significant than in some other areas of law. However, the decision to leave the EU creates considerable uncertainty regarding the future landscape for multi-jurisdictional insolvencies and auditing rules.

It would also change the landscape not only to the auditing rules of UK companies operating overseas but also for UK audit firms who own, or are part of the management body of, a European company. It appears that in the latter case, a UK auditor may no longer be recognised by EU qualified owners or managers.

There’s more. Because UK businesses which have a presence in the EU will become designated as third country businesses they will be required to comply with specific accounting and reporting requirements in the country where they operate.

The various UK-based accountancy bodies are not, as you might have guessed, happy with any of this and have urged the Government to complete Brexit negotiations “as a matter of urgency” and to avoid at all costs the dreaded ‘no deal’ scenario. 

The downsides are significant and include (but are not limited to):

• Businesses having to have more than one audit report;
• Audit professionals not being able to move between the UK and the EU; and
• The potential for people to have to requalify (in the absence of reciprocal recognition agreements)  

The mutual recognition aspect is crucial in other areas, too. What if the appointments of insolvency practitioners or audit professionals were not recognised and judgments in insolvencies had to be made TWICE, once in the UK courts and again in an EU court?

These matters do not just affect the large audit outfits – many medium and even smaller-sized firms have business and professional connections in Europe these days. At the moment, it looks like a dog’s dinner but not one even my Bedlington Terriers would relish.

I recognise that for the majority of my accountancy contacts, EU-based clients may not be a significant percentage of their client base.  However, with no news on any “deal” this is something that still needs to be thought about – as ever, Brexit remains a problem for which there is no resolution in sight (yet).