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FRC and BEIS letters on accounting and reporting from 1 January 2021

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  • BEIS Image

27 Nov 2020

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 on 31 December 2020. The changes are particularly relevant for UK incorporated companies, multinational groups with a UK and EEA presence and UK and EEA companies with cross-border listings.

There are many changes which can be complex to identify and apply. The letter addressed to the accounting sector splits out the changes applying to:

  • UK incorporated companies or groups; and
  • EEA incorporated companies and groups

UK incorporated companies or groups

Key changes to the corporate reporting regime are as follows:

  • For periods beginning on or after 1 January 2021, all UK incorporated companies that are currently required to use EU-adopted IFRS will need to apply UK-adopted international accounting standards (UK-adopted IFRS). On 1 January 2021, UK-adopted IFRS and EU-adopted IFRS will be identical. Companies with 31 December 2020 year-ends should use EU-adopted IFRS for that year and apply UK-adopted IFRS for the following year.  There are some transitional provisions for companies with financial years straddling 31 December 2020 and for those companies whose year-end is before 31 December 2020 but which are not required to (and do not) file accounts until after the end of the transition period.  The FRC has provided guidance in this regard which will be particularly relevant for companies subject to Chapter 4 of the FCA’s Disclosure Guidance and Transparency Rules.
  • From 1 January 2021, UK incorporated companies or groups with securities admitted to trading on an EEA regulated market and UK incorporated groups that issue debt from a subsidiary incorporated in the EEA will need to comply with local regulatory provisions. Companies should check what reporting requirements apply with the relevant EEA competent authority. If UK-adopted IFRS is granted equivalence to EU-adopted IFRS by the EU, accounts prepared using UK-adopted IFRS will be acceptable for use by companies admitted to trading on an EEA regulated market.
  • For periods beginning on or after 1 January 2021, the exemption from audit for subsidiaries granted by parent guarantee (under s479A-C of the Companies Act 2006) will only be available where the guarantee is given by a UK parent undertaking; it may no longer be given by an EEA parent. This change also affects dormant subsidiaries which make use of the exemption by guarantee from preparing and filing accounts. The ICAEW has published TECH 06/20BL which addresses changes to the audit exemption.

The letter also cover changes relating to:

  • Use of the Companies Act exemptions from preparing group accounts: for periods commencing on or after 1 January 2021, companies wishing to claim exemption from preparing group accounts on the basis that they are included in a non-UK consolidation further up will need to use section 401 of the Companies Act 2006. To do so, the group accounts in which they are included must be equivalent to those required by UK law.
  • Preparation of non-financial information statements: in-scope UK subsidiaries with EEA parents will need to prepare a separate non-financial information statement rather than relying on the parent’s non-financial information statement for periods beginning on or after 1 January 2021.
  • New rules regarding extension of accounting reference dates for UK subsidiaries of EEA parents.

 EEA incorporated companies or groups

Key changes include:

  • EEA companies with transferable securities admitted to trading on a regulated market in the UK who use Member State GAAP (i.e. the national GAAP of a Member State) will need to prepare accounts in accordance with UK law for periods beginning on or after 1 January 2021.
  • An intermediate EEA parent company owned by a UK parent may need to produce consolidated group accounts for their EEA sub-group as well as individual accounts. Companies should check with the relevant EEA state to understand whether they can continue on relying on being exempt from the preparation of group accounts by virtue of being included within the consolidated financial statements of the UK parent.

The FRC is expected to issue updates to FRS 100-105 later this year or early in 2021 to reflect changes in the law as a result of the UK’s withdrawal from the EU.

BEIS has also issued a separate audit letter with information for auditors and audit firms regarding arrangements from 1 January 2021.  The FRC and BEIS will be hosting a webinar on 3 December.

A press release and the letters are available on the BEIS website. Our related Need to know publication is available here.

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