Statutory Auditors, Third Country Auditors and International Accounts Standards (Amendment) (EU Exit) Regulations 2019 — House of Lords, 2019-09-26
Topic: Mixed Topics
Ian Duncan (Conservative, Centre-right): It is like I have never been away. Noble Lords will be aware that regulations were laid before Parliament earlier in the year to address deficiencies arising in the fields of accounting and audit from the withdrawal of the United Kingdom from the European Union. They did not implement new policy but granted new powers and responsibilities to the Secretary of State and the Financial Reporting Council. Further regulating adjustments are now required The EU accounting and audit directive, together with the EU’s international financial reporting standards regulation—to the extent that they are not repealed—will form part of the retained EU law under the European Union (Withdrawal) Act. The accounting and audit directives set out the requirements on the accounts and audit of most incorporated businesses, as well as a framework of standards. The directives also set out the responsibilities of the competent authorities The EU’s international financial reporting standards regulation sets standards for accounting by parent companies of groups. The audit regulation sets additional requirements on the statutory audit of those businesses defined as public interest entities. These are banks, building societies, insurers and issuers of shares or debt securities on regulated markets Our aim is to ensure that the framework for accounting and audit regulation works effectively following the UK’s withdrawal from the EU. The statutory instrument under discussion takes some further steps to help facilitate this. With regard to the audit directive, this instrument will ensure that equivalence or adequacy status decisions will be granted by negative resolution regulations. It makes sure that, irrespective of whether a withdrawal agreement is reached, the Secretary of State can make regulations after our exit from the EU to set out the framework for future assessment of equivalence and adequacy by the UK regulator. It will also enable us to grant equivalence and adequacy status to some third countries that have had applications under consideration in the EU during the period since March this year This instrument also completes the process of extending powers to the UK’s competent authority, the Financial Reporting Council. It extends the FRC’s ability to regulate third-country auditors to include EEA and Gibraltarian auditors. It also puts beyond doubt that those EEA auditors who have already registered in the UK as statutory auditors will retain that status after exit. The instrument makes an important change to the audit exemption framework. In common with the exemptions in the accounting framework for subsidiaries, the subsidiaries audit exemption will not be available unless the subsidiary has a UK parent. Finally, on audit, the instrument corrects an error in the previous audit statutory instrument affecting the frequency of audit inspections required for auditors of public interest entities On accounting standards, the instrument revokes some EU regulations relating to the adoption or amendment of IFRS within the EU. Without revocation, these regulations would be brought into domestic law by the European Union (Withdrawal) Act. However, the International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019 have already made provision for what will be the international accounting standards for the UK at exit day. These revocations remove any duplication and potential confusion. The revocations here also reflect changes in EU adopted international accounting standards issued or identified since the earlier accounting statutory instruments were made What will the impacts be? The Government have carried out a de minimis impact assessment of this instrument as the overall costs to business are anticipated to be small. This confirmed that the additional impact on business of the changes in this instrument is a cost of approximately £930,000 per year. Only limited sectors are affected by each of the changes. This limited impact is counterbalanced by the beneficial effect of the changes in the first audit EU exit statutory instrument, which was assessed as saving businesses approximately £2.96 million per year In conclusion, these amendments aim to provide continuity for businesses operating in the audit sector wherever possible and to ensure that UK companies will continue to benefit from global trade and investment. If the UK leaves the EU without an agreement, the measures contained in these regulations will be critical in ensuring that the audit regulatory framework in the UK works effectively. I commend these draft regulations to the House.