So the vote is in and the United Kingdom (UK) has voted to exit the European Union (EU). So why is this important to CPAs and CPA exam candidates? The fallout of the Brexit vote is important for financial professionals in our global economy, impacting our companies and clients.
The “Brexit” vote was a referendum on a protectionism regime whereby the UK wants to go it alone and put its fate in the global economy in its own hands. In the current globalization economy, the UK as a member of the EU traded freely with 27 other EU countries without tariffs, taxes and other trade rules. Under a protectionist regime, the UK is relying on UK producers to realize future benefits by retaining market share and charging higher prices. Additionally, the UK government may seek to increase revenue through charging tariffs on imported goods and services. Therefore, U.S. companies exporting to the UK will be at a disadvantage. The imposition of trade barriers (e.g., tariffs) tends to increase prices of goods and services and slow demand for those goods and services.
How the global economy reacts is uncertain in the long run. It is evident that short-term pains are to be expected. The U.S. stock markets reacted negatively on the news sending stocks lower. However, the reaction may have been overstated depending on whether a company or client is transacting business or providing investment capital in the UK economy. Financial professionals will need to assess the UK impacts of renegotiated trade agreements, foreign currency fluctuations, transfer pricing arrangements, and worldwide tax liabilities. U.S. companies operating in a free and open global economy rely on the global economy to operate in balance. Imports, exports, and currency stability are the hallmarks of the globalization world we live in today. Any uncertainty inserted into the global economy puts pressure on pricing and foreign capital investment decisions.
CPA exam candidates should note that the Business Environment & Concepts exam covers topics such as macroeconomics, globalization, protectionism and the free market economy. The successful CPA needs to understand how business operates in a global economy and provide sound advice to clients and stakeholders. While the recent current events of the Brexit vote are likely not specifically covered on the exam, the concepts and ramifications to U.S. businesses matter in the financial professional’s world and are the reason the exam tests on these topics.
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