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IFRS in the UK

For guidance on the UK's withdrawal from the European Union see our dedicated page.

Prior to the UK's exit from the EU, for each financial year beginning on or after 1 January 2005, EC Regulation 1606/2002 (‘the IAS Regulation’)  required companies with securities (either equity or debt) admitted to trading on a regulated market of any member state of the European Union to use ‘international accounting standards’ in preparing their consolidated financial statements.

In this context, ‘international accounting standards’ meant standards (International Accounting Standards and International Financial Reporting Standards) issued by the IASB and interpretations issued by the IFRS Interpretations Committee (and its predecessor, the Standing Interpretations Committee) that had been endorsed by the EU. 

Following the UK’s exit from the EU and the end of the implementation period on 31 December 2020 at 11.00 p.m. UK time, the IAS Regulation was repealed in the UK. Instead, a new legal term was introduced into UK law - ‘UK-adopted international accounting standards’ - for IFRS Standards as adopted by the UK.

For periods commencing after IP completion day (i.e. periods commencing on or after 1 January 2021), UK companies required to apply IFRS Standards in their consolidated financial statements (i.e. companies with their securities admitted to trading on a UK regulated market - see below) will need to state compliance with UK-adopted IFRS Standards, rather than EU-adopted IFRS Standards. UK-incorporated companies with securities admitted to trading elsewhere in the EU may need to confirm they have followed both frameworks, unless the EU determines that UK-adopted IFRS Standards are equivalent to EU-adopted IFRS Standards, something which has not been confirmed at the time of writing.

Endorsement of IFRS Standards by the EU ceased to apply in the UK immediately after IP completion day. This means that UK companies applying EU-adopted IFRS Standards with financial years that straddle IP completion day, or whose accounts are approved after IP completion day, would be unable to apply any IFRS Standards that had not been endorsed for use by the EU by IP completion day in the accounts for that period. To address this issue, the government introduced an option for such companies to adopt in addition any IFRS Standards endorsed by the UK after IP completion day. UK companies subject to Chapter 4 of the Disclosure Guidance and Transparency Rules (DTR) are also required to state compliance with EU-adopted IFRS Standards for periods commencing before 1 January 2021.  

Entities transitioning from EU-adopted IFRS Standards to UK-adopted IFRS Standards for the first time for periods commencing on or after IP completion day should not apply IFRS 1.

UK endorsement

New legislation provides for a UK mechanism for the endorsement of IFRS Standards from IP completion day. IFRS Standards as adopted by the UK on IP completion day are the extant IFRS Standards as adopted by the EU immediately before IP completion day, but may diverge over time; the timing of UK endorsement of standards may also be different from EU endorsement. The Secretary of State for Business, Energy and Industrial Strategy (BEIS) has delegated to the UK Endorsement Board (UKEB) by statute the power to endorse IFRS Standards for use in the UK.

The UK endorsement website is available here.  The UKEB will be accountable to the Secretary of State on technical matters and the FRC Board on its governance and due process procedures.

Companies with securities admitted to trading on a UK regulated market

As noted above, for periods commencing on or after IP completion day, UK companies with their securities admitted to trading on a UK regulated market will need to comply with UK-adopted IFRS Standards, rather than EU-adopted IFRS Standards.

The Financial Conduct Authority (FCA) maintains the list of UK regulated markets. Currently, this list comprises:

  • London Stock Exchange;
  • Cboe Europe Equities Regulated Market;
  • The London Metal Exchange;
  • ICE Futures Europe;
  • AQSE Main Market; and
  • International Property Securities Exchange (IPSX).

The Alternative Investment Market (AIM) is not within the definition of a UK regulated market. However, the AIM rules as updated in 2020 require any AIM company incorporated in the UK or an EEA country (being any EU member state, Norway, Iceland, Liechtenstein or (for the purposes of the AIM rules) the Channel Islands and Isle of Man) to prepare accounts in accordance with IFRS Standards. For companies incorporated in the UK for periods commencing on or after IP completion day, this should be read as UK-adopted IFRS Standards; those incorporated in the EEA should apply EU-adopted IFRS Standards.  

Use of IFRS Standards by other companies

Except where IFRS Standards are required to be used, UK companies, other than charities, may choose to prepare their individual and/or group financial statements in accordance with either UK GAAP or IFRS Standards, subject to the constraints. Companies that are charities must prepare their individual and group financial statements in accordance with UK GAAP.

Thus, UK companies other than charities can apply:

  • IFRS Standards (consolidated and separate financial statements); or
  • UK GAAP - FRS 101 (IFRS Standards with reduced disclosure) (separate financial statements) if certain qualifying conditions are met; or
  • UK GAAP - FRS 102 (consolidated and separate).

Where companies prepare both individual and group financial statements, the choice between IFRS Standards and UK GAAP operates separately for each.  A company that is required by Companies Act to use IFRS Standards for its consolidated financial statements still has a free choice of using IFRS Standards or UK GAAP for its individual (i.e. separate) financial statements.  Similarly, a company that has chosen, but which is not required, to use IFRS Standards for its consolidated financial statements does not have to use IFRS Standards for its individual financial statements.  Although less likely, it is also possible by law for a parent company to prepare its individual financial statements under IFRS Standards while preparing UK GAAP consolidated financial statements.

As noted above, the free choice is subject to certain constraints. Where group accounts are prepared, the Companies Act requires that the individual accounts of the parent company and its subsidiary companies must be prepared using the same framework and not a mixture of the two.  However there are certain exemptions.

There are also specific rules which make it difficult to switch back to Companies Act accounts once a company has started to prepare individual/group accounts under IFRS Standards. Subject to the above constraints there is freedom to move from Companies Act to IFRS separate/group accounts.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.