The Government has published a joint letter with the Financial Reporting Council (FRC) setting out the key implications of the UK leaving the European Union (EU) without a withdrawal agreement (a so-called “no-deal Brexit”) for accounting and corporate reporting.
The letter confirms the following changes, which will be made through a series of statutory instruments:
- UK companies that prepare their accounts using EU-endorsed International Accounting Standards (IAS) will continue to be able to do so for financial years that “straddle” the date on which the UK leaves the EU – the so-called “exit day” (currently scheduled for 11:00 p.m. on 29 March 2019). However, for financial years beginning after exit day, UK companies currently preparing their accounts using IAS will need to switch to UK-endorsed IAS. These are standards that are to be officially adopted by a new UK endorsement body in due course. UK companies will not be able to switch from IAS to UK generally accepted accounting principles (UK GAAP) merely because of the UK leaving the EU. However, a company will continue to be able to switch to UK GAAP in certain circumstances, including if it has been preparing accounts under IAS for at least five years.
- Similarly, UK companies with securities admitted to a UK regulated market (such as the LSE Main Market) will continue to be able to prepare financial statements using EU IAS for accounting periods that straddle exit day. However, after exit day, they will need to switch to UK IAS.
- Conversely, UK companies with securities admitted to an EU regulated marketmay find that they need to start preparing both accounts under UK IAS or UK GAAP and accounts under EU IAS.
- EEA companies with a UK listing, however, will continue to be able to prepare their financial statements using EU IAS, as the UK Government is intending to issue an “equivalence decision” recognising EU IAS as sufficient for these purposes.
- UK companies with subsidiaries or branches in a European Economic Area (EEA) state will need to check local requirements. UK GAAP will no longer be deemed automatically equivalent under EU law, meaning that EEA subsidiaries and branches may need to prepare separate accounts under local accounting rules.
- As we have mentioned in previous updates, intermediate UK parent companies with an immediate EEA parent company will no longer be automatically exempt from preparing accounts, and dormant UK subsidiaries with EEA parents will need to start preparing individual accounts.
The Government has also published a separate letter with the FRC setting out the implications of a no-deal Brexit on company audits.