ICAEW.com works better with JavaScript enabled.

Judgment under pressure under Brexit?

With Brexit rapidly approaching, auditors need to be on top of their game, challenging management assumptions and using their judgment in an unknown environment, says LSCA Technical Committee chair Jamie Tomlin.

"
Jamie Tomlin

January 2019

At the end of last year, the FRC announced the areas of focus it expects to consider when reviewing an audit. These are:

  • going concern and the viability statement;
  • the other information in the annual report;
  • long-term contacts; and
  • impairment of non-financial assets.

Although Brexit is only identified as being a factor in the individual areas of work the FRC will focus on, this choice is clearly those areas which have a higher degree of susceptibility to impact from Brexit.

My concern here is how the uncertainty about the impact of Brexit will be applied depending upon the preparers’ stance on Brexit itself. Brexit is full of unknowns and (dare I quote) unknown unknowns! Directors must prepare information for disclosure, and make assumptions about the future, which will be based on scenarios that, despite the much-publicised views of both camps, are highly uncertain.

Staunch remainers may be overly cautious (or perhaps not) in their view about the future, resulting in very different reporting from brexiteers who may see this as the chance to grab the global opportunities this presents (or perhaps not). But how do I, as auditor, for example, assess a value-in-use calculation when highly sensitive assumptions used by management may be driven by the viewpoint of the preparer. This is always the case, but here it is at a far higher level.

The landscape after the referendum did not experience the impact that either side predicted (or promised), but, and this is a big but, that was after merely an expression of a probable change about the future without knowing what that change would be.

With Brexit very close, the realities and the uncertainties become clearer. If uncertainty can become clearer. The past here is not going to be a guide to the future. The impact may also depend upon whether the period under consideration is short, medium or long term.

For auditors, professional scepticism is paramount here, with much challenging of assumptions, consideration of alternatives, and assessment of the ability to perform as expected. The joy of auditing in the current climate!

Jamie Tomlin is chair of the LSCA Technical Committee.

Liked this? Read these:

London Accountant

Go to London Accountant for more features, news and opinion.
Follow us on Twitter @ICAEW_London and join us on LinkedIn: LSCA and Croydon.
Subscribe to ‘regional updates’ to receive more articles.