Transition period ends: New UK Audit Regulations
4 January 2021: Following the end of the Brexit transition period, new UK Audit Regulations are now in place, effective 1 January 2021. The major changes involve the qualification of EEA auditors and firms that could affect responsible individual (RI) status and ownership tests.
Read the new UK Audit Regulations are effective 1 January 2021.
Points to note include
- EU qualified RIs on the UK audit register at 31 December 2020 are grandfathered through to 2021 and beyond and can continue to be part of the audit firm ownership tests.
- EU audit firms can no longer count towards the audit firm ownership tests.
- In the absence of a mention in the trade agreement, no EEA qualification is recognised for UK audit registrations from 1 January 2021 until mutual recognition is established.
However, EEA qualified individuals in the process of seeking recognition as an RI in the UK at 31 December 2020 can continue to secure that recognition. Note these individuals do not count as part of the audit ownership tests until they have completed the aptitude test.
EEA individuals who secure a qualification with a recognised qualifying body will continue to be recognised though they may need to sit an aptitude test.
Firms that will no longer meet the ownership test of a required majority due to disqualification of EEA firms and individuals need to apply to the Audit Registration Committee for a dispensation to be granted under regulation 2.17. Firms should email firstname.lastname@example.org to apply. If granted, the firm will have up to 90 days from the date when the firm becomes ineligible ie, 1 January 2021 to regularise the position. The period of dispensation cannot be extended.
Although the UK has unilaterally recognised the EU states for adequacy and equivalence for audit, this equivalence currently does not apply for working papers owing to the absence of reciprocity. The FRC and BEIS have issued advice on this topic and some key points from this include:
Conduct of group audits
- The effect of rules in the Audit Directive on group audits will not change as a result of EU Exit.
- The rules do not differentiate between a group auditor considering the audit of a subsidiary in the UK, the EU, in an equivalent third country or in a non-equivalent third country.
Inspection of group audits
- Until reciprocal working arrangements have been agreed, transfers of working papers will not be possible between the EU member states and the UK.
- The effect may create difficulties if an EU or UK group auditor has not assembled sufficient paperwork themselves during the audit. However, sufficiency of documented evidence has always been a necessary requirement in the preparation of an audit file.