Brexit and EU audit reform

24 June 2016

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Following the UK referendum vote to leave the EU, the business community within the UK and the EU faces a period of uncertainty and in the short term, volatility. Ian Powell, PwC UK’s Chairman and Senior Partner said this morning: “History has taught us that UK business is adaptable and innovative when confronted with new challenges and opportunities.” I agree with him and it’s now important for us to focus on those challenges and opportunities.

As we envisage what that future might look like, one question very relevant to our industry is “So what happens to all that EU audit reform?”. I’ve talked to many of you over the last two years about the EU legislation that’s about to introduce major changes to the audit market for our large listed companies.  

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. Implementing UK legislation is already in place, and the FRC’s Ethical Standard came into force last Friday. This morning the FRC 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.

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 continue to face the challenge of differing implementation in different EU member states. The newly-created CEAOB (Committee of European Audit Oversight Bodies) – a EU-wide committee of audit oversight regulators – will play a role in maximising consistency; unfortunately the FRC are likely to have less influence on this body than they may have hoped.

As it was to me this morning, the referendum result may have been a surprise to you and indeed to many UK companies. Many representatives of the UK’s large business community were supporting the Remain campaign. With over 50% of those who voted choosing to leave, this tells us that there’s still a huge divide between big business and the general public. So we need to take this result as a catalyst for business to renew its efforts to restore public trust. We need to be even more transparent and communicate more clearly with a wider range of stakeholders, demonstrating our important contribution to society. PwC, and in particular our Assurance business, are committed to playing a key role.

PwC’s purpose of building public trust and solving important problems has never been more important. If you have any concerns about how today’s result will affect you, please get in touch.

Gilly Lord | Head of Regulatory Affairs
Profile | +44 (0)20 7804 8123

 

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