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The impact of Brexit on audit rights in Ireland

Information for firms that undertake audits of Irish entities.

Key points to note:

  • The Irish audit authorities have indicated that they interpret the Audit Directive to mean that non-Irish resident accountancy firms currently on the Irish Audit Register, are unlikely to retain automatic audit rights in Ireland in the event of a no-deal Brexit. Your firm will be directly affected by this.
  • ICAEW won’t remove firms from the Irish Audit Register from Brexit day as it is not empowered to do so under current Irish law. After Brexit day, it will be unwise for firms to sign an audit opinion as retrospective legislation could close this gap.
  • In the event of Brexit, (whether agreed or hard) those firms that have opted in to Irish Audit registration will remain on the Irish register until Ireland amends its laws to exclude firms qualifying purely by membership of ICAEW. All three institutes (ICAEW, ICAS and ICAI) are taking this line and have had legal advice to confirm this approach.
  • When section 1470(a) of the Companies Act 2020 is repealed there will be two impacts;
    • Firms and RIs will have to re-apply under section 1470(c) as third country auditors which requires undertaking an aptitude test, unless they can demonstrate adequate experience to qualify for exemption. Initial soundings from IAASA suggest the exemption criteria for “adequate” will be quite demanding. Firms with no Irish audit clients are unlikely to qualify. The current aptitude test is based on the Chartered Accountants Ireland’s Company Law and Tax papers.
    • The audit control test will be based on those who are “eligible” under section 1470; however with the repeal of 1470(a), depending how the Irish government amend other parts of the act,  this may mean that only those who qualify for the exemption or have passed the aptitude test could qualify for the assessment of audit control.
  • No recognition can be exercised in the absence of a reciprocity arrangement between the UK and Ireland. A draft MoU for reciprocity arrangements between the UK and Ireland has been agreed in principle. Further steps are needed before reciprocity is formalised.
  • Scenario planning is still required. Even if firms can demonstrate entitlement to the exemption for responsible individuals (RIs) on Brexit day, it is unlikely audit signing rights will be secured for some time after.
  • UK firms that audit companies listed on the Irish Stock Exchange will need to be registered by IAASA as third country auditors.
  • The process for applying to be a third country auditor in respect of audits of Irish entities is currently undefined. It will not be agreed or take effect until after Brexit day (31 January 2020 or later). This makes a roll-over of existing registrations extremely difficult to plan and it could be some months before it is in place. However, on 14 January 2019, IAASA signified that a provisional registration process was in place (Form B) for third country auditor status for those who audit UK entities with listings on the Irish Stock Exchange.  Read more
  • As a consequence, and in the absence of transitional arrangements, it should be assumed that in the event of a no-deal Brexit, UK firms will have to cease audit services to existing Irish clients after Brexit day (31 January 2019 or later). In such circumstances firms need to consider the following approaches in their scenario planning.

Scoping steps

  • Firms must immediately identify their audits of Irish (ROI) entities that could be affected by this Irish ruling and the timing of their audit opinions.
  • All responsible individuals (RIs) who sign Irish audit opinions need to be separately identified and analysed according to whether their residential address is in the UK or in the ROI.
  • All audits where the Irish records are retained in the UK need to be identified.

Management of audits

  • Consider advancing or delaying audit opinions due to take place in February or March 2020.
  • Consider whether the only feasible option is to resign as auditors and the timing thereof.
  • Consider moving the audit and the RI responsibility to your Irish network firm, including:
    • Agree the resignation of the UK firm and replacement by the Irish firm with the client.
    • Consider the resource capability within the Irish network firm and either; second staff where appropriate; or retain the underlying work within the UK firm under ISA600.
    • If the latter, the Irish firm will need to agree the necessary increase in audit fee to cover the ISA220 supervision.
    • Agree the revised timetable for delivery of the audit opinion with the client.
  • For Irish accounting records that are retained in the UK, consider if these records need repatriations or a visit from an Irish audit firm that retains its registration.
  • In all options the client needs to be alerted to the operating timescales and needs to consider:
    • The impact on filing requirements under company law and listing requirements.
    • The impact on taxation payments.
    • The impact on banking and other covenants.

Management of registration

Where your firm is likely to need separate registration as a statutory auditor in Ireland:

  • Consider if the Irish registration is necessary for the firm;
    • If no current audits – is it of strategic value?
    • If only a few audits – whether continued engagement is of strategic value?
  • If the re-registration requires aptitude tests – which of your firm’s RIs should undertake them?

There are a number of questions that arise as part of this planning. The RABs are seeking clarification with IAASA, the Department of Business Enterprise and Innovation in Ireland, BEIS and the FRC on;

  • the definition of a firm’s residency;
  • the ability to second staff from the UK to Ireland post Brexit day;
  • the application of Brexit day as a cut-off date; and
  • the process for re-registering post Brexit day.

We will update you as soon as we receive further information. Further guidance on Brexit is available at icaew.com/brexit or please contact our technical helpline on +44 (0)1908 248 250.

UK Brexit Audit Regulations

Draft UK Audit Regulations for Brexit have been approved by the ICAEW Regulatory Board (IRB). The principal changes relate to the qualifications of EEA auditors and firms. Transitional arrangements will apply until 31 December 2020 whether there is a deal or no-deal Brexit. As Irish eligibility post no-deal Brexit is not defined, these regulations are for the UK only.

In the event of a no-deal Brexit, both UK Audit Regulations for Brexit and the Audit Regulations effective 1 January 2020 will be effective. The table below shows the possible configurations:

Scenario  Regulations for both jurisdictions  Separate Regulations for the UK only  Separate Regulations for Ireland only 
No-deal Brexit: 31.10.19
2017 Audit Regulations used for Ireland only
2017 Audit Regulations used for Ireland only
Not applicable.
To be developed when eligibility rules established
Deal Brexit: 31.10.19
2017 Audit Regulations up to 31.12.19 for both.
To be used for Ireland only post 1.1.2020
Brexit Audit Regulations from 1.1.2020
Not applicable.
To be developed when eligibility rules established
Brexit still outstanding at 1.1.2020
2019 Audit Regulations used for UK and Ireland from 1.1.2020
Development of UK version of the 2019 Audit Regulations for April 2020
Not applicable.
May be developed when eligibility rules established
Brexit day delayed until eg, 31.3.2020
2019 Audit Regulations for UK and Ireland up to 31.3.2020.
To be used for Ireland only post 1 April 2020
Brexit Audit Regulations from 1.4.2020
Not applicable.
To be developed when eligibility rules established

Although the result of the UK’s December general election has removed some doubt, there continues to be a number of uncertainties pertaining to Brexit which we are having to manage and will advise firms accordingly as and when they became apparent.

Changes to firm stationery and websites

Firms that state they are ‘Registered to carry out audit work in the UK and Ireland’ or similar on their stationery and websites will need to amend this to exclude Ireland as appropriate.

Further support