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Brexit and audit – key questions for consistent approach

Helpsheets and support

Published: 16 Dec 2020 Update History

As a pervasive issue affecting many businesses, it is important that firms develop a consistent approach to Brexit. This guide provides some tips to help you do that.

This guide is part of a series intended to help auditors of SMEs deal with current Brexit-related uncertainties associated with a potential no-deal exit as they affect 31 December 2018 and 31 March 2019 audits. The series does not deal with the longer-term potential opportunities or risks associated with Brexit more widely.

10 key questions for a consistent approach to Brexit-related issues across the practice

Has the firm considered developing internal guidance covering the Brexit implications for:

  1. Busy season planning and staff management taking account of the issues noted below, the need to involve experts (in relation to impairments, for example) and whether experts are available;
  2. Engagement quality control reviews, and how reviewers should challenge audit teams on how Brexit has been dealt with in the risk assessment (including the identification of significant risks);
  3. Audit planning and the approach to Brexit-related risk factors, such as supply chain management;
  4. Criteria for determining whether Brexit-related disclosures are adequate, particularly in the light of the fact that clients may seek to resist specific rather than generalised disclosures on the basis of commercial confidentiality. Some firms are developing a ‘Brexit template’ for teams to use covering the Strategic Report and Directors’ Report;
  5. Advice to clients on the additional Brexit-related work they will need to do;
  6. What management should be expected to provide in terms of scenario and sensitivity analysis for impairment and going concern assessments (and viability assessments if applicable), including contingency planning, and how the likelihood of the various outcomes is to be assessed;
  7. Additional work on risk and going concern assessments and additional quality reviews, particularly for clients who are likely to be unprepared and need assistance;
  8. The need to consider independence issues where there are major Brexit-related considerations audit clients need help with;
  9. Client management where Brexit-related issues have the potential for significant adverse operational or regulatory consequences, particularly where clients are also struggling with IFRS 15 and IFRS 9, because of limited resources in their finance function, such as some AIM-listed entities;
  10. Resource planning, budgets and fees, communications with clients more generally and marketing the firms’ services.

What is the likely timing of this guidance? Some firms are seeking to issue no-deal guidance within the firm as soon as possible, others before the end of 2018, in all cases recognising that this is a moving target and that the material will need to be kept under review and updated frequently.

Communications with clients

These communications might be about the need for management to provide additional information about Brexit-related issues, and to support relevant disclosures. Communications might cover:

  • Required disclosures in the Strategic Report, and potential, but not mandatory disclosures in the Directors’ Report, such as uncertainties relating to going concern and critical accounting estimates, including impairments, the recognition of deferred tax assets and/or other disclosures addressing sensitivities and uncertainty required by the Corporate Governance Code;
  • The FRC letter referred to above and the need to avoid boilerplate;
  • What information the firm is likely to be asking management for in terms of scenario and sensitivity analysis for the purposes of impairment and going concern assessments, including contingency planning, and how the likelihood of the various outcomes might be assessed;
  • The potential impact on audit administration.

Some firms are considering communicating these issues to clients through webinars as well as written communications. Some are promoting champions both within the firm and externally, as go to staff (or teams) for clients with queries about Brexit-related issues, particularly as they affect the financial statements.