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Little change for financial reporting following Brexit for now

24 February 2020: on 31 January 2020 the UK left the EU. Or did it? From a financial reporting perspective, very little has changed, writes Marianne Mau, Technical Lead in ICAEW’s Financial Reporting Faculty.

The UK has now entered a transition period – or Implementation Period (IP) to quote the legislation – which is due to end on 31 December 2020 (IP completion day). During this period the UK is no longer a member of the EU but continues to be subject to EU rules.

The regulatory framework during the transition period

During the transition period the “old”, or pre-Brexit, regulatory regime continues to apply. In other words, UK companies will continue to apply either EU-adopted IFRS or UK GAAP in their accounts. This regime applies for accounting periods beginning during the transition period, even if the accounting period ends after the 31 December 2020.

Exemptions which are dependent on EU status will also continue to apply. For example, an intermediate parent company that is the subsidiary of an EU parent can continue to take advantage of the exemption from preparing group accounts (Companies Act 2006 s400) for the time being.

After the transition period

The transition period comes to an end on 31 December 2020 at 23:00 UK time. A new regulatory framework will apply for financial statements prepared for accounting periods beginning on or after 1 January 2021.

After transition, UK companies currently applying EU-adopted IFRS will apply UK-adopted IFRS. In the short-term, UK and EU-adopted IFRS are expected to be identical as all extant EU-adopted IFRS will be brought into UK law and become UK-adopted IFRS as of 31 December 2020.

More problematic is that current references to the EU or EEA in company law will be replaced on 31 December 2020 with references to the UK. This will be particularly relevant to companies with EU subsidiaries or parent companies seeking exemptions, for example from the preparation of group accounts and filing of dormant company accounts. This is considered in more detail in the recent joint statement by the FRC and the Department for Business, Energy and Industrial Strategy BEIS) on Accounting and Corporate Reporting During the Transition Period.

ICAEW guidance

The Financial Reporting Faculty will be issuing further guidance on the implications for financial reporting of the UK leaving the EU and we welcome your views and suggestions. Please email the faculty at frfac@icaew.com.

Please see our guide on reporting in times of uncertainty.
 
ICAEW also offers a number of IFRS courses that may be of interest, including a specialist qualification:
 
IFRS Update – challenges, risks & emerging issues
IFRS Refresher
IFRSs and financial reporting programme