Audit watchdog tells accountants to highlight Brexit risk in reports

THE Irish auditing watchdog, IAASA, has warned company directors and auditors that they will need to give special attention to the impact of Brexit when preparing upcoming financial statements for client companies.

In a document published in recent days, the Irish Auditing and Accounting Supervisory Authority (IAASA) gave guidance on how auditors should handle the uncertainty surrounding Britain’s exit from the EU and how it would affect businesses going into the future.

This is particularly aimed at quoted companies which provide annual and interim financial reports.

Said IAASA: “Because of the large amount of trade between Irish and UK entities it is widely accepted that the UK decision to leave the European Union could have a disproportionate and negative impact on Irish entities trading in the UK or with operations in the UK.

“In preparing financial statements, entities must take account of the increased risk and uncertainty through the exercise of subjective judgement and the use of estimates.”

In its annual Observations document, IAASA included a section on Brexit and the “financial reporting challenges”.

“Brexit has resulted in increased uncertainty with greater volatility in markets than expected. The impact of Brexit will differ from entity to entity,” it said.

Those preparing financial documents should give scrutiny to uncertainties due to “Brexit and sluggish EU economic growth offset by an improving domestic economy”.

Brexit may affect on the issuer’s principal risks and uncertainties, assumptions made about the future and major sources of uncertainty such as market assessments of growth, interest rates, market liquidity.

Companies may also need to consider whether financial and non-financial assets, including goodwill, have been impaired.

The impact of Brexit on volatility in the quoted prices for financial assets and the effectiveness of hedging will also need to be considered.

IAASA referenced reports from the OECD and the Central Bank which outline the potential impact of Brexit.

The audit watchdog first flagged the issue of Brexit in company reporting immediately after the vote.

IAASA also raised other issues in the document. It reiterated that disclosures should be relevant and tailored to the reporting entity’s specific circumstances rather than being “boiler plate” in nature.