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Brexit update: what now for corporate reporting?

Chris Smith Chris Smith

One month ago, the UK government ratified an EU-withdrawal agreement. Not much will change until the end of the transition period on 31 December 2020, after which the UK will either:

  • enter into a Free Trade Agreement (FTA) with the EU
  • leave with no trade deal and trade with the EU on World Trade Organisation (WTO) terms.

Management must continue to disclose the principal risks and uncertainties for their business arising from Brexit in their Strategic Report and to consider the implications for the financial statements. These disclosures will continue to be high on the Financial Reporting Council's (FRC) watchlist for the forthcoming reporting season and are likely to be scrutinised and challenged. Investors and other stakeholders increasingly expect to see an assessment of the impact of Brexit and a clear plan for readiness.

The financial reporting areas most affected by Brexit uncertainty post-transition period are those that rely on management forecasts. Broadly, these include, but are not limited to:

  • going concern; and, in the case of main-market listed companies, viability statements
  • principal risk and uncertainty disclosures
  • impairment of financial assets, non-financial assets and determination of recoverable amounts
  • fair value determination of assets and liabilities where there are limited or have no observable inputs (mainly level 3 and some level 2 fair values)
  • current and deferred tax assets and liabilities.

Below, we’ve explored some of the key points for management to consider on Brexit to meet their reporting responsibilities.

1 Measure exposure to Brexit

All entities will need to assess their exposure in the areas that may be affected by Brexit. Both during and, more particularly, beyond the transition period. High-level exposure assessment will likely be driven by the following:

During transition period

  • Broader economic conditions arising from Withdrawal Agreement
  • Reliance on EU trade agreements for access to third country markets and other EU international agreements
  • Exposure to EU jurisdictions where UK entities fall outside the scope of certain domestic tax law provisions
  • Exposure to EU/US tax treaties

Post transition period

  • Broader economic conditions arising from a trade deal or no-trade-deal Brexit
  • Changes to the regulatory environment in which the entity operates resulting from a trade deal or no-trade-deal Brexit (including legal, data, product conformity, tax and customs)
  • Reliance on European customers and markets (including wider EEA and custom union with Turkey)
  • Reliance on European suppliers and supply chain (including wider EEA and custom union with Turkey)
  • Short- and long-term changes to logistics and distribution
  • Reliance on EU trade agreements for access to third country markets and other EU international agreements
  • Reliance on European workforce
  • Reliance on European financing, either commercial or grant funding

2 Scenario analysis

The key challenge for reporting in relation to Brexit is the uncertainty surrounding whether a long-term trade deal will be ratified before the end of the transition period and what effect this will have on the regulatory and economic environment in the UK. For example, what will happen to UK companies with cross-border operations in the EU should there be no trade deal?

It is extremely important for boards of directors to give due consideration to the potential impact of a No Trade Deal Brexit in order for them to meet their fiduciary duties. The level of scenario analysis required will differ from entity to entity.

Need practical advice on navigating Brexit? Read our guidance

Prepare for a no-trade-deal outcome

If, at the reporting date, there is still uncertainty regarding a ratified trade deal, management should prepare a scenario analysis that considers the impact of a No Trade Deal Brexit. Not to mention,the possibility that a ratified trade deal may change or not address parts of the current trading relationship, to the extent these are material to the entity. Each scenario should consider the impact of the following potential realities, among others:

  • The ability of the entity to continue to operate in the regulatory environment in countries outside the UK after the transition period
  • Increased customs duties. This is likely to impact the entity’s margins to the extent the entity is unable to pass any increased cost on to customer. It will depend on exposure to both imports from primary non-UK suppliers and the extent to which the UK-based suppliers are exposed to, and pass on to the entity, increased customs duties
  • Other non-tariff-based barriers and costs, including additional customs administration, and the cost of additional regulatory requirements
  • Crystallisation of certain tax and deferred tax liabilities at year-end and the entity’s ability to settle them (see below)
  • Increased lead time in import and export of goods through European borders, and its potential effect on the manufacturing process
  • Potential loss of a significant proportion of European workforce working in the UK, or increased staffing costs
  • Recession or contraction in global markets affecting demand for UK goods and services

3 Consider the wider implications of Brexit

There are two levels of uncertainty regarding Brexit:

1 direct impacts, such as duties and tariffs and interaction with the EU through customers and suppliers

2 broader impacts on the general economy

More specifically, risks could arise from changes in regulation, access to capital, currency fluctuations and exchange rates, valuations, credit risk, and the reduction in EU exports in the short term.

Other possible risk areas arising from a no-trade-deal Brexit or a deal which doesn’t address, or changes, part of the current trading relationship, include:

  • cyber and data security
  • the ability to attract key talent
  • the impact of global political changes on asset values/impairment
  • the impact on an entity’s supply chain
  • tax exposure.


Since there is so much uncertainty, it is vital for management to plan for all realistic scenarios, and from a reporting perspective, provide the users of their annual reports with sufficient information regarding the impact of these uncertainties on the future prospects of the entity and the measurement of its assets and liabilities. This should cover what the uncertainties are, and how sensitive management’s conclusions are to possible changes in the key assumptions made by them.

Our experts have examined all the possible impacts of Brexit, and their reporting implications, and can help your business prepare. Discover how we can further support you with your Brexit planning.

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Need practical advice on navigating Brexit?

Our guidance covers a range of factors that will affect your business and how to address them.

Read our guidance