Brexit - the vote to leave

On 23 June 2016, a referendum in the United Kingdom returned a result in favour of leaving the European Union (commonly referred to as ‘Brexit’).

Whilst the longer term political and economic effects of these events are as yet unclear and Article 50 of the Lisbon Treaty has not yet been activated, the announcement of the referendum result instantly triggered a significant amount of market turbulence, including:

- Significant volatility in UK equity markets, particularly in the banking sector.
- Sterling falling by 10% against the U.S. dollar and 8% against the Euro.
- Downgrade of the UK’s credit rating by major ratings agencies
- Downgrade of major Banks and Financial institutions by major ratings agencies
- significant volatility in major European, North American and Asian stock markets

For corporates and financial institutions, this is the beginning of a period of heightened uncertainty. For many businesses, this could also bring opportunity and planning should also focus on identifying and exploiting these.

With half year reporting season upon us, management will wish to present Boards of Directors with analysis of the potential impact on their business and actions being undertaken to mitigate any uncertainties.

In the lead up to the 2016 annual reporting season, audit committees will need to consider the broader implications across all aspects of their remit.

We would expect the interim audit committee to include a discussion on the audit risks arising from Brexit and the impact on both the external and internal audit plans.

There is also an immediate need to assess whether there are any accounting and reporting matters to address – consider risk and uncertainty disclosures, financial risk disclosures, liquidity issues and asset impairment indicators.

The purpose of this publication is to provide an overview of:

- the most immediate risks to Corporates and Financial institutions in Cyprus, affected by a possible Brexit, to facilitate discussion at Board and Senior Management level and

- The key financial reporting considerations Corporates and Financial institutions should consider as part of Interim and annual financial reporting