Reporting implications of a no-deal Brexit
At the time of writing there is little more than a month to go to the planned EU Exit date of 29 March, yet there remains considerable uncertainty as to whether the UK will be leaving the EU with a negotiated deal or not, or even if the UK will be leaving the EU at all on that date as planned.
This uncertainty has made it difficult for UK business to plan for Brexit. With the current reporting framework being largely based on EU regulation, the implications for accounting is one area where there has been considerable uncertainty for some. To help address this the Financial Reporting Council (FRC) has now published guidance on what a no-deal Brexit will mean for corporate reporting in the UK.
The good news is that for most entities it will be business as usual post-Brexit, at least in the short term. At some point in the future the UK Government may contemplate moving away from the existing regulatory framework, but its unlikely that this will be seen as a priority.
For now though those entities that prepare their accounts in accordance with UK Generally Accepted Accountancy Practice will see no changes to the accounting standards they are required to follow. There will be changes though for listed entities and those other entities that prepare their accounts in accordance with International Financial Reporting Standards (IFRS). At present before a new or amended International Standard can be brought into use it has to first be endorsed by the EU. The plan is that a separate UK endorsement system will be introduced during 2019 that will replace the current approach. There is no plan to revisit standards already in force though, so immediately after Brexit there will be no accounting changes to reflect. For accounting periods that straddle the exit date accounts should still refer to EU-endorsed IFRS; for accounting periods that commence after exit date though UK-endorsed IFRS should be referred to in the accounts.
One unfortunate consequence of this will affect UK entities with listed securities on an EEA market. It seems likely that in future they will need to prepare two sets of accounts, both prepared under IFRS, but reflecting any differences arising from the EU and UK endorsement regimes.
Another area where there could be consequences following Brexit is accounting by groups. Firstly any UK parent undertaking that has subsidiaries or branches in an EEA State will need to check the local reporting requirements. The current UK Companies Act will no longer be deemed to be equivalent to local regulation, which may result in additional reporting obligations that will vary by nation. If this potentially affects your business the Kreston International has local advisers in nearly all of the EEA States that will be able to advise you.
Groups will also be affected by the withdrawal of the exemption that is currently available to UK intermediate parent undertakings from preparing consolidated group accounts due to having an EEA parent that does so instead. Exemption may still be available using the rules that are currently in place for groups with a parent outside of the EEA, but it is likely that more UK parent undertakings will be required to prepare group accounts following the UK’s departure from the EU.
The exemption for UK subsidiary undertakings that are dormant and have EEA parents from preparing and filing accounts with Companies House is also being withdrawn.
Regarding audit requirements there will be no immediate changes. Those entities that are currently able to take advantage of audit exemption should be able to continue to do so. If your accounts are subject to audit though, and your current auditor is based overseas in an EEA State, you should check to ensure though that they will continue to be eligible to act as an auditor in the UK following Brexit.
This covers most of the guidance that the FRC has published. There is more information available for listed and other public interest entities, as well as guidance for the accountancy profession itself. This is all available free of charge on the FRC website
If you have any concerns on how Brexit will impact your business and its reporting obligations please contact Alun Edwards or your usual Kreston Reeves adviser.
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