Audit watchdog warns on Brexit accounting risks
Iaasa has flagged wide range of pitfalls which could catch out unwary firms, writes Samantha McCaughren
THE audit and accounting watchdog has issued a warning to Irish companies and tax advisers about the potentially significant accounting Brexit pitfalls they may face.
The Irish Auditing and Accountancy Supervisory Authority (Iaasa) warned that some companies may have to go as far as restructuring as a result of Britain’s exit from the EU.
“There may be potential issues in relation to the legal ownership of some of the larger firms,” said the document.
“A number of firms are structured as all Island, Great Britain and Ireland and even European firms. They may now need to restructure so that the firm meets the EU ownership requirements.”
The body has said that while many countries share close relationships, with cross-border audits taking place routinely ‘we are not aware of any other jurisdiction where the recognition’ between Irish accounting professionals and their British counterparts are as widespread.
“If Brexit results in the UK becoming a ‘third country’ then this may have significant implications for UK auditors wishing to audit Irish entities (and vice versa),” said Iaasa.
“If reciprocal rights are not in place, then members of the profession who until now could freely practice throughout these islands, and across the island of Ireland in particular, may now find that considerably more difficult,” said the watchdog.
It said that its research confirmed that there huge uncertainty remained among tax experts and companies which could be affected by Britain’s decision to leave the EU.
“What was evident from many of those discussions was the lack of clarity on the part of many entities who may be significantly affected by Brexit as to how best to prepare,” added Iaasa.
“This is born of the lack of clarity around precisely what shape Brexit will ultimately take, expressed reductively in the ‘Hard Brexit/Soft Brexit’ debate.
“A number of stakeholders have chosen to simply wait it out until clarity emerges.”
But Iaasa said there could be significant implications for accounting standards after Brexit.
“Post-Brexit there is a risk that UK and Irish Generally Accepted Accounting Principles (GAAP) as currently structured could result in local financial reporting standards being in breach of EU law,” it said.
“In such a scenario, Ireland would need to move away from UK and Irish GAAP and decide either to follow International Financial Reporting Standards (IFRS) for SMEs or adopt its own accounting standards, perhaps based on UK standards but with amendments for breaches of the law or other specific Irish market issues.”
“Although in many cases the visible impact would be small if at all, this would have significant effects for the profession in terms of training and awareness of the subtle differences between IFRS and UK and Irish GAAP, of which there are many,” said the note to industry.