The end of the Brexit transition period has resulted in significant changes to how businesses operate. Combined with the impact of COVID-19, this presents unique challenges for auditors. This guide provides ten questions to help auditors develop a consistent approach to Brexit across the practice. These questions are just a starting point for audit firms.
10 key questions for a consistent approach to Brexit-related issues across the practice
Have you reviewed the portfolio of businesses your firm audits? Which are most likely to be impacted by Brexit, for example, businesses that trade with the EU? Consider those whose supply chain is dependent on EU suppliers or whose employees regularly travel to or are sourced from the EU? Are any of the businesses you audit affected by changes to non-UK trade agreements?These audits may require additional audit planning on how to approach Brexit-related audit risks. The Audit and Assurance Faculty guide 'Brexit and audit – Brexit-related risk factors' provides further guidance on risk assessments.
- Will you need to consider your firm-wide approach to challenging areas, such as risk assessments or going concern assessments and how you respond to risks, for example, by increasing the amount of senior or independent review and/or involving experts? Consider whether it may be appropriate to do this for all clients or on a more limited basis, for example, in sectors most likely affected by Brexit.
Given the dual impact of the COVID-19 pandemic and Brexit, it is likely that audit work will increase on areas such as going concern. The Audit and Assurance Faculty guide 'COVID-19: considering going concern – a guide for auditors' provides further support.
Will you need to adapt your firm-wide engagement quality control review processes, for example, using an Engagement Quality Control Reviewer (EQCR) on a greater number of audits, or changing how reviewers challenge teams on how Brexit has been dealt with in risk assessments (including in the identification of significant risks)? Consider also the impact of additional EQCR time on staffing and timetables.Review processes and document any changes clearly in your quality manual and/or audit methodology.
- Does your approach to assessing the adequacy of disclosures by management need updating?
Management may resist specific disclosures, particularly due to combined uncertainties from Brexit and COVID-19. You may wish to consider developing a ‘Brexit template’ for teams to use covering the Strategic Report and Directors’ Report and issuing guidance on disclosures such as key estimates and judgements and material uncertainties relating to going concern.
- Have you considered the impact of Brexit on groups with EU components?
More time and expertise may be required to understand risks at the component level and how they affect the group audit, as well as practical matters such as any restrictions on access to working papers. Have you considered if a UK subsidiary of an EEA parent company now requires an audit? If it does, this will require more resource and room in the timetable.
- Have you assessed the firm-wide impact on staffing of engagements, as well as expert and partner review time?
Additional time for audit work may impact the timetables of other engagements, for example if staff are not able to start work on their next engagement. There may be pinch points in availability of experts, EQCRs and/or partner time during busy season.
- What are your firm-wide policies and procedures on providing advice and support to management?
Many small businesses view their auditors as trusted advisors and may ask for your advice on how to prepare or respond to Brexit-related risks. You will therefore need to consider ethical requirements, including independence.
- How will your firm communicate any additional information and/or audit evidence needed, for example, the provision of additional going concern scenarios and sensitivity analysis by management?
You may find it useful to develop Brexit and/or COVID ‘prepared by client’ specific lists or guidance on financial reporting requirements, including timelines for information to be provided to the audit team. It will also be helpful to have planning conversations early on with management to allow them to plan for additional time and/or resource requirements.
- How will your firm communicate any additional costs to clients, for example, those arising from a need to increase staffing and/or involve experts, as well as potentially enhanced audit work on new risks and going concern?
- Can you still sign audit reports for EEA incorporated entities, including Ireland?
UK auditors will now be subject to ‘third country’ auditor requirements which may mean aptitude tests or restructuring to meet majority ownership tests. You should check the status of your registration with the relevant competent authority.
Our Brexit hub provides further resources for understanding Brexit, the trade agreement and how accountants and businesses may be impacted.