Written by Gilly Lord, head of audit strategy and transformation, PwC
AS we envisage what the future might look like following the UK referendum vote to leave the EU, one question very relevant to our profession is “So what happens to all that EU audit reform and how will future audits be affected?”
Despite the vote for Brexit, I’m not expecting the UK’s implementation of the EU audit reform legislation to change over the short or medium term. Implementation of UK legislation is in place, and the FRC’s Ethical Standard came into force on the 17 June. The FRC has already confirmed that the UK regulatory framework is unchanged. In my view, we must continue to focus on improving audit quality and increasing public confidence in audit.
So, in many ways, it’s business as usual in the world of audit. However, although I’m not anticipating any immediate regulatory changes, there are a few key considerations for auditors as they plan upcoming interim reviews and year end audits in light of the Brexit vote. Among other things, auditors will now need to consider:
- Foreign exchange rate volatility and potential impact on financial statements
- Potential impact on asset valuations, and on valuation of pension deficits (real estate could be a sector particularly affected)
- Whether changes are needed to principal risk disclosures; and
- Whether going concern assessments and viability statement reviews need to be updated.
In the long-term, it’s possible that the UK regulatory framework could change, but I think it’s more likely that the UK will continue to apply much of the EU regime in order to maintain market access. Those companies with a multi-national presence will still face the challenge of differing implementation in different EU member states. The newly-created CEAOB (Committee of European Audit Oversight Bodies) – an EU-wide committee of audit oversight regulators – will play a role in maximising consistency; unfortunately the FRC is likely to have less influence on this body than they may have hoped.
The referendum result was a surprise to many. Despite the majority of business leaders being in favour of remaining, more than 50% of the public voted to leave the EU. This indicates that a significant divide remains between big business and the general public. This result should be a catalyst for business to renew its efforts to engage with the public and restore trust. We need to be even more transparent and communicate more clearly with a wider range of stakeholders, demonstrating our important contribution to society.
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