On 13 June, the Government released their framework for the future UK-EU Partnership in the area of Company Law (accounting and auditing). The paper outlines the current and proposed relationship between the UK & EU on cross border company matters post-Brexit in this area. (All references, unless otherwise stated, are taken from this document).
- As usual and with many of the Government’s negotiating positions, it is clear that leaving the European Union will make things worse, not better.
- The Government admits in their paper that existing EU rules when it comes to allowing non-EU member states to the EU market for accounting and audit are not sufficient for the UK.
- The Government has openly admitted that being outside of the EU’s rules on accounting and audit will have impacts on businesses seeking to raise capital, add costs to regulators and could negatively impact growth of UK companies.
- These admissions by the Government are not good enough – if Brexit is going to make the UK worse off, then it is only right that there is a people’s vote at the end of the process.
- In this position paper, the Government admit on multiple occasions how beneficial the existing UK-EU relationship is when it comes to company law.
- Specifically on the issue of accounting and audit, the Government admit in their paper that “existing EU third country regimes partially cover accounting and audit. They do not provide sufficient continuity of equivalence, stability for companies and enforcers, nor cover all issues.” This begs the question as to why the Government are pursuing a policy which will make it harder, not easier for the UK in this area.
- Specifically, when it comes to the Single Market, the Government note in their paper that “the EEA markets are used by around 800 UK companies to list equities and debt securities” raising topical questions as to why the Government is so keen to take the UK out of the Single Market and why the Government decided not to pass a Lords’ amendment which would have seen the Government negotiate membership of the European Economic Area?
- The government have noted that should we default to 3rd party status it could cause a negative impact on company growth, create unnecessary levels of regulation and create added costs for regulators, adding that defaulting to third party status could create a breakdown of accounting equivalence, force companies to provide two sets of accounts at extra cost, and could impede capital raising across jurisdictions.
- The Government also accepts that after the UK leaves the EU the recognition of individuals and firms across the EU will not extend to UK qualified auditors and UK approved firms, affecting UK registered audit firms.
- Moreover, the Government note that “existing third country regimes do not guarantee sufficient stability of coverage by the end of the Implementation Period. Existing third country regimes do not cover all accounting and audit issues, notably corporate reporting and audit requirements, and audit firm registrations.”
- In short, this paper by the Government indicates the complications arising from Brexit and proves for grim reading. If Brexit is going to be as complicated as the Government are claiming it is to be, it is yet further reasoning why there should be a people’s vote at the end of the process.