Following the triggering of Article 50, the implications of the June 2016 UK referendum remain at the forefront of political debate in the UK. The impact that Brexit will have on the UK’s financial reporting infrastructure and the related international ramifications have, however, not yet attracted sufficient attention.
As part of ICAEW's ongoing response to the UK's decision to leave the EU, our report Brexit: implications for financial reporting addresses some of the key financial reporting issues the UK will face post-Brexit. It also offers 16 recommendations aimed at policymakers and their constituents in response to some of the principal questions that we have heard raised on this important subject, including:
What will Brexit mean for UK financial reporting?
The economic importance of financial reporting should not be ignored when considering the policy implications of Brexit. Trust in the financial reports of listed companies underpins investor confidence in the capital markets, while the IFRS has increasingly become a reporting benchmark for listed companies worldwide. A move away from IFRS would therefore risk making the UK less appealing to international investors.
Should the scope of the current regulatory framework be revisited?
We ask what can be done to improve or streamline the scope of the current regulatory framework post-Brexit, when the UK will no longer be subject to EU law. Should reporting obligations be reduced for smaller businesses, for example?
How can the UK continue to be a major player in global standard-setting?
Importantly, we also look at how a post-Brexit UK can still play a leading role in the development of international reporting. We argue that if the UK wants to continue to be a major player at international level then, amongst other things, UK authorities will need to make the case for UK participation in both the IFRS Foundation Monitoring Board and the Accounting Standards Advisory Forum.
The UK and IFRS after Brexit: what are the options?
Next, we examine three options available to the UK in its expected post-Brexit position as a country adhering to IFRS, but sitting outside EU jurisdiction:
EU-adopted IFRS continue to be applied by UK listed companies and the UK continues to participate in EFRAG decision making.
UK listed companies are required to use IFRS as issued by IASB, without any mechanism for rejecting new standards.
The UK establishes some form of national endorsement mechanism.
Read our report for a closer look at option 3, as we explore the possible features of a UK mechanism for the endorsement of future IFRS standards.