The Brexit Effect on Audit
If the news is anything to go by it’s looking more and more likely that Boris Johnson, unwittingly or not, is leading the UK towards a no deal Brexit. An uncertain state of affairs to say the least and one which will undoubtedly stir the nerves of businesses. For those working in audit, these are the things to consider as the 31 October deadline looms.
The most practical advice is of course to be prepared. First and foremost, verify that your current qualifications are recognised in the UK as well as any EU countries you will be dealing with professionally. According to guidance for the Brexit transition, individual audit professionals will be provided with, in essence, a bridging EU qualification that will be valid from the date of exit until 31 December 2020. Auditors are thus advised to use this transitional period to sit an aptitude test in order to apply for recognition within the UK. There may not be an opportunity to after 2020.
There is also the possibility you may need to re-qualify with the most up to date qualification, so check this with your company and the relevant audit body such as the FRC if you are working within the financial services sector for example.
In addition to this revision of qualification, those in possession of audit jobs in the UK must brace themselves for incoming audit regulations. This together with a major overhaul of practices and auditing standards from the government as it figures out its post-Brexit survival plan. Regulations regarding the oversight and professional recognition of statutory auditors and third country auditors in the UK in particular will likely be amended following a no deal to ensure the regulatory framework continues to operate effectively.
Compliance will also see a shift as the UK finds its feet out of the shadow of the EU and applies its own compliance rules and regulations. In particular, standards around financial services, anti-bribery and corruption will likely be top of the priority list for changes.
As far as where auditors should be fielding their skills, the key areas requiring attention are advisory services, risk and IT audit. Businesses are going to need extra attention and support navigating the transition following 31 October, particularly as economic activity promises to become stagnant regardless of a deal or no deal outcome. With companies facing a far more challenging trading environment, there will be a much greater need for that audit advisory role to be implemented.
Auditors will need to evaluate how risks associated with the fallout from Brexit will affect the enterprises they are auditing. As such, they will need to ensure this is properly reflected in their reporting and handling of financial statements. They will need to consider whether Brexit-related disclosures should be included, exactly which information is necessary for the report and the best way to convey that information.
Cyber security as ever continues to be a prime concern for auditors, with the Marriott hotel chain and Facebook being just two of the most recent high profile examples of data breaches. Cyber-attacks top the three biggest business risks along with regulatory change and digitalisation, according to a survey by the IIA. Thus there is more need than ever for a more extensive IT audit presence in order to properly audit cyber security as well as auditors with an in-depth understanding of cyber security risk.
So, as we head closer to the 31 October deadline, the best course of action is to ascertain the areas you can apply the necessary changes to prepare for Brexit and identify where your individual skillset will best benefit your firm and your clients.