UK companies unprepared for EU audit rotation and Brexit

One-in-five large UK companies is "woefully unprepared" for the incoming European Union (EU) rules on audit rotation that are due to take effect in June, as businesses are worried over the cost and disruption of changing auditors. EY's Hywell Ball says this lack of preparation by firms is a problem for two reasons: firstly, firms could be forced to change auditors at an inconvenient time, such as during changes in IT or over a period of M&A activity; secondly, due to the increasing restrictions on non-audit services, the "firm has to plot its way through a series of tenders." Furthermore, a new report by Deloitte shows that the UK's largest businesses are totally unprepared for Brexit should Britain vote to leaving the EU on 23 June, meaning that many companies could struggle to cope with the transition.

Reuters

Britain's biggest businesses are overwhelmingly supporting the country staying within the European Union.

However, a majority of those companies are also totally unprepared for a Brexit if Britons decided to vote for leaving the 28 nation bloc on June 23 this year.

Deloitte just published its 35th quarterly survey of 120 Chief Financial Officers and Group Finance Directors of major companies in the UK. The 2016 Q1 survey took place between March 8 and March 21.

While 120 CFOs doesn't sound like a big sample size, it's actually pretty significant. The survey included 20 FTSE 100 CFOs and 55 FTSE 250 company chiefs. Overall, the combined market value of the 84 UK-listed companies surveyed is £360 billion, or approximately 17% of the UK quoted equity market.

So, actually, the survey is a pretty decent snippet of insight into what some of Britain's biggest companies are doing and thinking.

Unsurprisingly, the survey found that 75% of CFOs are in favour the UK remaining in the EU — up from 62% in the previous quarter. The survey follows only a couple of weeks after the director-general of the Confederation of British Industry (CBI) , Carolyn Fairbairn, said that "leaving the EU would cause a serious shock to the UK economy, with a potential cost to UK GDP of £100 billion and 950,000 jobs by 2020 and negative echoes that could last many years after that."

However, only 26% of CFOs said their company has "made, or is in the process of making contingency plans for a possible British exit of the EU." Some 53% explicitly said that they have "made no such plans."

This means that if the UK did decide to leave Britain, the latest survey suggests that companies would struggle to cope with the transition.

After all, as the former Cabinet Secretary Lord O'Donnell, who served under three successive Prime Ministers between 2005 and 2011, said in March, negotiating an exit from the EU would be extremely hard.

"I'm in that camp that doesn't think we can do it in two years," said Lord O'Donnell to BBC Radio 4's Today.

"Obviously at the end of two years anything we haven't negotiated has to be extended by unanimity of a vote excluding us so that's a bit scary."