Brexit will change the UK’s corporate financial reporting requirements for many businesses. Laura Tibbetts and Giles Mullins look at some of the key changes to help you stay ahead of the new rules.
The changes Brexit will make to financial reporting have been summarised earlier in the year in letters published by the Financial Reporting Council (FRC) and the Department for Business, Energy and Industrial Strategy (BEIS).
Companies that currently adopt The International Financial Reporting Standards (IFRS) as endorsed by the European Union can continue to use EU-adopted international accounting standards (IAS) when preparing accounts for financial years beginning up to and including 31 December 2020.
However, for financial years beginning on or after 1 January 2021, companies will need to use UK-adopted IAS instead of EU-adopted IAS. Thankfully, at first, both sets of standards will be identical and there will be no change for companies that prepare accounts in accordance with UK GAAP (such as FRS 102).
As time goes on, though, we may see differences develop as the UK adopts or amends its own financial reporting standards. This could cause additional complexity for consolidations of international groups.
Impact on group accounts for UK-EU groups
A UK company with an immediate parent undertaking established under the law of an EEA State has historically been able to claim an exemption from the preparation of consolidated financial statements under s400 of the Companies Act 2006.
This exemption will not be available going forwards. However, you should consider in the first instance whether the company is eligible for exemptions under s401 of the Companies Act 2006 as an alternative.
We expect there will be instances where consolidated financial reporting statements will need to be prepared and filed in the UK because of this change.
The administrative burden of dormant companies may be about to increase.
Under s394A and s448A of the Companies Act 2006, UK dormant companies are currently exempt from having to prepare and file individual accounts if they are part of a group with an EU parent company that prepares consolidated accounts.
Going forwards, this exemption will apply to UK parent companies only for financial periods beginning after 31 December 2020.
As a result of this change, a number of dormant companies will be required to prepare and file individual accounts, something many of our clients say they are not prepared for.
What should you do now?
If you haven’t already, you should assess whether exemptions taken previously will continue to be available once the transition period ends on 31 December 2020. This will enable you and your team to plan for the increase in workload that may arise because of Brexit.
If you find yourself unsure of the impact for your financial reporting, or would like to explore your current thinking with us, contact Giles Mullins.