Brexit: Removal of audit rights in Ireland
ICAEW has received an indication from the Irish audit authorities that they interpret the Audit Directive to mean that non-Irish resident accountancy firms currently on the Irish Audit register, are unlikely to retain automatic audit rights in Ireland in the event of a no-deal Brexit. Your firm will be directly affected by this.
ICAEW and the other recognised accountancy bodies (RABs) as well as BEIS and the FRC are seeking further discussions with the Irish Authorities on certain aspects of this and seeking some transitional arrangements, but for scenario planning purposes firms should assume that these may not be forthcoming.
Most of the current licensing for audit in Ireland is based on membership of or registration by a RAB which is also a recognised supervisory body (RSB) in the UK. Consequently, individuals and firms receive audit rights for both the UK and the ROI simultaneously. However from 29 March 2019 our expectation is that UK audit firms will require to seek separate approval from IAASA as a statutory auditor in Ireland. This may include a requirement for RIs to undertake an aptitude test for the differences between UK and Irish law. In addition those UK firms that audit an undertaking that is listed on the Irish Stock Exchange will need to be registered by IAASA as third country auditors.
The process for applying to be a third country auditor in respect of audits of Irish entities is currently undefined and would not be agreed or take effect until after 29 March 2019. This makes a roll-over of existing registrations extremely difficult to plan and it could be some months before it is in place. However IAASA on 14 January 2019 signified that a provisional registration process was in place (“Form B”) for third country auditor status for those who audit UK entities with listings on the Irish Stock Exchange. Read more.
As a consequence, and in the absence of some transitional arrangements it has to be assumed for no deal Brexit purposes that UK firms will have to cease audit services to existing Irish clients after 29 March 2019. In such circumstances firms need to consider the following approaches in their scenario planning.
- Firms must identify immediately all their audits of Irish (ROI) entities that could be affected by this Irish ruling and the timing of their audit opinions.
- All RIs signing Irish audit opinions need to be separately identified and analysed according to whether their residential address is in the UK or in the ROI.
- All audits where the Irish records are retained in the UK need to be identified.
Management of audits
- Where the audit opinion is normally expressed in early April considering advancing this into March.
- Where the audit opinion is normally expressed after June consider whether this could be delayed for one to two months to leave more time for discussions with the Irish authorities to reach a conclusion.
- Whether the only feasible option is to resign as auditors and the timing thereof.
- Consider moving the audit and the RI responsibility to their Irish network firm, including:
- Agree the resignation of the UK firm and replacement by the Irish firm with the client.
- Consider the resource capability within the Irish network firm and either; second staff where appropriate; or retain the underlying work within the UK firm under ISA600.
- If the latter, the Irish firm will need to agree the necessary increase in audit fee to cover the ISA220 supervision.
- Agree the revised timetable for delivery of the audit opinion with the client.
- Where Irish accounting records are retained in the UK, consider whether those records need repatriations or a visit from an Irish audit firm that retains its registration.
- In all options the client needs to be alerted to the operating timescales and needs to consider:
- The impact on filing requirements under company law and listing requirements.
- The impact on taxation payments.
- The impact on banking and other covenants.
Management of registration
- Where your firm is likely to need separate registration as a statutory auditor in Ireland:
- Consider if the Irish registration is necessary for the firm;
- If no current audits - is it of strategic value.
- If only a few audits whether continued engagement is of strategic value.
- Should the re-registration require aptitude tests, which of the RIs within the firm should undertake them.
There are a number of questions that arise as part of this planning and the RABs have all fielded questions with IAASA and the Department of Business Enterprise and Innovation in Ireland as well with BEIS and the FRC in the UK. The answers to these questions may aid in the planning and also ease the transition. Clarification in particular is being sought on:
- The definition of a firm’s residency.
- The ability to second staff from the UK to Ireland post 29 March.
- The application of 29 March as a cut-off date.
- The process for re-registering post 29 March.
We will update you as soon as we receive further information. Further guidance on Brexit is available at icaew.com/brexit or please contact our technical helpline on +44 (0)1908 248 250.
Update at 10 April 2019 on audit registrations in Ireland
As at this date the removal of firms from the Irish audit register and the processes for reapplication remain uncertain. ICAEW has been advised under current law the removal is not easily achieved but this may be facilitated by future legislation, possibly with retrospective effect. UK firms registered with ICAEW for audit in Ireland are therefore advised not to sign audit opinions on Irish statutory entities after the date of Brexit until the position is clarified.
Update at 28 May 2019 on audit registrations in Ireland
On 11 April 2019 the Council of Ministers in Brussels agreed to the deadline for Brexit being extended to 31 October 2019. As a consequence the registration arrangements in operation continue to apply at this time. Audit opinions can continue to be signed until Brexit is implemented or until 31 October 2019. However while there has been some discussion as to what the nature of the eligibility requirement might be after Brexit, there has been no overt guidance issued by IAASA or the Irish government. The position therefore remains as it was at December in this respect.
In the UK the government and FRC asked that we prepare draft Audit Regulations for a no deal Brexit. We were able to do for the UK as stand-alone regulations which were shared with firms on 15 April 2019. However in the absence of details of the new eligibility criteria from IAASA for registration in Ireland we have not been able to replicate this for the audit of Irish entities post Brexit.