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Brexit – a possible setback for the auditing industry

1 september, 2020

If no free trade agreement is signed before the end of the year, the auditing industry will suffer. That is the opinion of FAR’s British counterpart, the organisation of chartered accountants ICAEW. In Sweden, however, the tendency is rather to dedramatize.

120,000 companies have either parent companies or subsidiaries in both the UK and the so-called EU-27, i.e. the EU minus the UK. Furthermore, about 300 large EU companies are listed on the London Stock Exchange, while legally domiciled in an EU country.

If the UK and the EU-27 fail to reach an agreement, these multinational companies risk problems after the end of the year.

– There has been no progress in any significant direction. Both parties arrived at the negotiating table with significantly different points of departure, says Martin Manuzi, European Director at ICAEW, UK’s equivalent of FAR.

Martin Manuzi. Photo: ICAEW

Balans Magazine interviewed Martin Manuzi at the beginning of the summer. Two months later, the situation of deadlock seems unchanged. Formally, the United Kingdom left the EU without an agreement January 31st. In practice, the ties aren’t cut until the end of the year, as 2020 operates as a transition period, during which it was estimated that the parties would have time to establish an agreement for the continued relations between the EU-27 and the United Kingdom.

With only four months before the deadline any form of agreement remains conspicuously absent. Within the Swedish auditing industry, however, the uncertainty is observed with serenity.

Compared to other more far-reaching consequences of Brexit, the Swedish auditing industry is rather mildly affected, says Johan Rippe, deputy CEO of PwC and the chairman of FAR.

– I don’t want to dramatize the situation more than is called for. If there is no agreement it is likely that any auditing firm with some form of activity in the UK market, for example submitting an audit report for a Swedish company that has securities listed in the UK, will need to apply for a permit with the British regulator FRC, he says.

Johan Rippe. Photo: Sigrid Malmgren

Johan Rippe compares with the USA where a few Swedish companies are listed on the New York Stock Exchange, and where the USA approves the Swedish auditors if the auditing company in Sweden is registered with the American supervisory authority PCAOB. In return, the Swedish auditors need to apply American auditing standards and submit to PCAOB’s quality review.

In other words, no insurmountable obstacles are raised. As a matter of fact, many countries outside the EU have functioning relations with the UK, Johan Rippe points out. Yet the UK being reduced to a third country is exactly what FAR’s British counterpart ICAEW wants to avoid.

For several years British auditors have been lobbying, through ICAEW, for a far-reaching free trade agreement between the UK and the EU-27, an agreement far exceeding EU’s normal relations with so-called third countries, particularly in auditing, where they wish to maintain maximum cross-border mobility, to continue to serve multinational companies.

In 2017, a working group within the UK Professional and Business Services Council (PBSC) published the publication Accountancy in the Brexit Negotiations on Brexit’s effects on the auditing industry. Five key areas were identified: mobility and education, mutual recognition of professional qualifications, mutual recognition of regulations, management of cross-border corporate structures and mutual recognition of appointments and statements.

”While all five priority areas are of concern, we place emphasis on statutory audit”, the document reads. Furthermore, it states that a future agreement (or lack of agreement) mustn’t have any adverse effects on the so-called audit package, the collective name for the EU directive and the regulation for auditors and auditors, respectively.

On January 1st, the United Kingdom will, if no other agreement is reached, be considered a third country in accordance with the Auditors Directive and the Auditors’ Regulation. At the same time, the United Kingdom will essentially continue to apply the audit package, which entailed significant regulatory tightening, primarily for companies of general interest and their auditors. These companies that are listed on the stock exchange or in the financial sector are typically large and with significant cross-border operations.

Now, the risk of a non-contractual Brexit remains highly effective, which would entail trade relations between the EU and the UK declining towards WTO level.

Read more on the subject: ”The timing could not have been worse”

Taggar: Brexit FAR Icaew

Text: Rakel Lennartsson
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