Brexit resources
Changes to the UK’s accounting, corporate reporting, auditing and corporate governance regimes
Under the European Union (Withdrawal) Act 2018, the UK ceased to be a member of the EU on 31 January 2020. Under the withdrawal agreement, enacted in UK law by the European Union (Withdrawal Agreement) Act 2020, there is an implementation period (IP), which ends on 'IP completion day', defined as 31 December 2020 at 11.00 p.m. UK time.
UK reporting continues to be subject to the EU legislative framework until IP completion day. This means that:
- existing company law relating to accounts and audit continues to apply;
- companies that are required or choose to adopt IFRS Standards must use IFRS Standards 'as endorsed for use in the European Union', meaning that new or revised Standards cannot be adopted before EU-endorsement; and
- the FRC remains a competent authority of an EU Member State, tasked with monitoring and supervising compliance with ESMA’s common enforcement priorities, which therefore remain relevant for UK company reporting.
There are a number of changes to the UK’s accounting, corporate reporting, auditing and corporate governance regimes after the end of the transition period. These changes are reflected in a number of statutory instruments which have been made by the government. These instruments amend retained EU law and EU-derived domestic legislation to address deficiencies and ensure that the law continues to operate effectively after IP completion day. They take effect from IP completion day, although in many cases transitional provisions exist such that changes take effect only for financial years beginning on or after IP completion day. The majority of changes made by these statutory instruments are to the Companies Act 2006 and affect a variety of provisions including eligibility for the small companies regime, exemptions from preparing consolidated accounts and the availability of audit exemption for subsidiaries. They also introduce a new legal term ‘UK-adopted international accounting standards’ for IFRS Standards as adopted by the UK and provide for a UK endorsement mechanism of IFRS Standards.
The Department for Business, Energy and Industrial Strategy (BEIS) and the Financial Reporting Council (FRC) have jointly published updated letters to audit firms and companies setting out changes to the UK’s corporate reporting framework after the end of the transition period.
Investor and FRC expectations in annual reports
The significant uncertainties in relation to the UK’s future relationship with the EU and the terms of any future economic partnership agreement continue to persist. Investors look for transparent information on how the uncertainties arising from the ongoing UK-EU negotiation affect the company, including its ability to continue as a going concern and its longer-term viability and prospects.
In its letter to Audit Committee Chairs and Finance Directors, the FRC's expectations are clear. It expects company reports to explain company-specific risks and uncertainties arising as a result of Brexit. This should include the impacts on different parts of the business and any effects on the financial statements including major sources of estimation uncertainty, amounts at risk and ranges of potential outcomes.
This page includes all of our resources on the financial reporting implications of Brexit. It includes links to:
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