On June 23,
2016, the UK voted to leave the European Union (EU) voluntarily. Amid the highest turnout at a UK-wide vote since 1992,
with a 70% turnout rate, the Leave campaign received 52% of the referendum,
compared to 48% received by the Remain campaign. The particulars of how the
UK will leave the EU will be the subject of negotiations for at least the next
two years.
Economists anticipate
market and currency instability in the short-term, but the longer term
implications will depend heavily on the details of how the UK unravels its
participation in the EU. Economists are also anticipating several years of
uncertainty, and uncertainty typically does not indicate positive signs for
financial markets or economic indicators. Uncertainty
among businesses would see a brake applied to investment and deal-making,
which would hit one among the most lucrative of areas for accounting
practitioners – transactional services market.
From
one perspective, for the accountancy sector, the EU is maybe less important as
the share of revenue generated by clients in other EU countries is just 4.2%.
However, as key major companies and banks might relocate from London to
Frankfurt in near future – this will mean a lot less money for accounting
firms, but there may be a recovery later.
British
relationships with the IASB, which lay outside the EU will remain unchanged. As
the UK has always been a keen proponent of IFRS, thus it is unlikely that there
would be any retreat to British accounting standards after Brexit. One
more area on which accountants are focused are the potential tax implications.
Taxation has remained a policy area over which EU member states retain close
control. Now after the Brexit vote, EU laws on direct and indirect taxation
will cease to apply within the UK, and Britain will regain the right to vary
its VAT and excise duty rates beyond the restrictions imposed by EU
legislation.
Workload is likely to increase for
audit firms due to Brexit but their lucrative value-added services offerings
may suffer as a result. Auditors would struggle to provide high-value advice to
their clients, instead having to focus on technical questions borne out of the
UK leaving the EU.
Additional
Thoughts
Nobody
can predict with certainty what is going to happen after the Brexit. It is an
extraordinary event and determined by many unknown factors. The audit firms
should consider what it will look like in the future and should assess their
client base. To secure the longevity of the practice, audit firms need to
ensure that their client base is well spread.
References:
