The UK left the EU on 1 January 2021, upon which date the EU-UK Trade and Cooperation Agreement (TCA)
became effective. One of the key impacts this has had on accountants is the recognition of professional qualifications between the UK and EU. In this blog, we consider the implications of the TCA and propose that while it represents a significant step back from previous arrangements, there is scope for clarity to come.
The end of mutual recognition of professional qualifications
Before 1 January 2021, professional accountants qualifying in the UK enjoyed legal recognition of their qualifications across the EU member states, and vice versa. The TCA brought this mutual recognition to an end.
With the UK now considered a ‘third country’ to the EU, UK qualified accountants are no longer automatically deemed qualified to provide services to entities incorporated in an EU country. This restriction also works the other way, with the supply of services to a UK-incorporated entity by an accountant qualified in an EU member state now requiring prior approval by the Financial Reporting Council (FRC) as the UK’s competent authority.
UK regulated accountants must now consider individual EU country requirements
Instead of an overarching UK-EU arrangement for professional recognition, regulated accountants must now comply with the individual requirements of each EU member state. These vary by country and are set out in Reservation No.2 of Annex Servin-1 of the TCA.
While some EU states already have existing legislation to recognise third country qualifications, these provisions are generally very limited, with many requiring not only prior approval from the country’s competent authority but also residency within the country or a member state of the European Economic Area (EEA). By virtue of the UK leaving the EU, it also ceased to be a contracting party to the EEA agreement. In sum then, regulated accountants who wish to provide regulated accountancy services within another country within the EU or EEA must now check the local requirements in the country in which they wish to practise.
Professional accountants in the UK and Republic of Ireland
The impact of the TCA is perhaps more significantly felt closer to home, for the many regulated accountants who practise both in the UK and the Republic of Ireland. For the first time, the UK is now considered a third country to Ireland, with different registration processes now applying between the two.
The new UK Audit Regulations, which came into force at the same time as the TCA, account for these changes, with the effect that all EU and EEA registered auditors, including those qualified in Ireland, are no longer recognised for UK audit registrations from 1 January 2021. This does not impact EU auditors who were already on the UK Audit Register as at 31 December 2020, or those who were in the process of seeking UK registration on that date.
Likewise, UK auditors undertaking audits of Irish entities are no longer automatically registered on the Irish Audit Register and will need to apply separately for Irish audit registration if they are not already registered. This does not affect UK auditors already on the Irish Audit Register, who will remain registered until Ireland amends its laws.
Currently, section 1470 of the Companies Act 2014, which provides approval as a statutory auditor in Ireland, is conditioned upon the person being:
(a) a member of a recognised accountancy body and holding an appropriate qualification,
(b) an EU member state auditor, or
(c) a third country auditor.
It is expected that this section will be amended to the effect of removing condition (a). While this amendment is unlikely to be enacted until the later part of this year, the effect of such a removal will be that UK auditors will need to reapply under section 1470(c) and will therefore be required to undertake an aptitude test.
In addition, and in more practical terms, firms not already on the Irish Audit Register whether or not they are currently seeking registration, must remove any reference to ‘Ireland’ on their website and corporate stationary. For these firms, a clear statement should be visible along the lines that the firm is ‘registered to carry out audit work in the UK’.
The possibility of reciprocal working arrangements
On a more positive turn, the TCA does make provision for the FRC and equivalent competent authorities operating in the EU countries to agree mutual recognition of qualifications and the reciprocal provision of cross-border audit and accountancy services.
For Irish qualified auditors, the FRC has declared its approval of the audit qualification of CPA Ireland to be considered equivalent to a recognised professional qualification in the UK. Accountants holding an audit qualification from CPA Ireland will therefore be able to have their qualification recognised for the purposes of becoming a UK statutory auditor, following satisfactory completion of a UK aptitude test.
While UK auditors included on the Irish Audit Register will for the moment remain able to audit entities in Ireland without re-registration, the expected changes to the Companies Act 2014 will eventually mean UK auditors will need to re-register. However, when this time does come, the recent MOURA between the FRC and the IAASA affords some certainty of what will be required.
The TCA changes the position quite significantly in respect of professional accountants who previously enjoyed unrestricted legal certainty regarding the recognition of their qualifications on an EU-wide basis. Disappointingly, the TCA does not provide specific equivalence provisions for regulated accountants, as it does with financial services. However, what it does offer is scope for mutual recognition agreements to be made between the UK and individual EU member states. This provision is of significant importance when looking to the future. Within a short space of time after the TCA came into force, we have already seen promise of a more certain future by the FRC’s reciprocal arrangement with the IAASA. With the ICAEW and ACCA also sending assurances to their members that they are actively supporting and working with the FRC in creating these arrangements, it is hopeful that we will see more mutual recognition of qualifications being secured in the future. In the meantime, the message is clear – regulated accountants who wish to provide auditing or other regulated accountancy services to clients operating in an EU member state must make sure to check the individual requirements of the country in which they wish to practise.
If you have any questions or concerns about the content covered in this blog, please contact Julie Matheson or a member of the Regulatory team.
ABOUT THE AUTHORS
Julie Matheson is a partner in the Regulatory Team. Her expertise lies in advising professionals and professional services firms, particularly in the accountancy and built environment sector, on regulatory compliance, investigations and enforcement proceedings.Julie assists clients with a range of regulatory issues, ranging from non-contentious advice on compliance with a regulator’s rules and procedures, to defending clients subject to regulatory investigations and prosecutions.
Lucinda is a professional support lawyer in the Regulatory team, and is responsible for knowledge management and practice development. She has previously advised individuals and professional bodies in the legal and accountancy sectors, on authorisations, compliance, ethics, and regulatory policy.