Brexit: Questions for Financial Reporting Policy Makers

The passage of the European Union (Notification of Withdrawal) Bill through Parliament is expected to lead within weeks to the firing of the starting gun for the formal negotiations on the departure of the UK from the European Union. So now is the time for financial reporting policy makers and their constituents to start a conversation about the implications of that process for UK financial reporting.

This is no small matter. Trust in the financial reports of UK plc underpins investor confidence in the capital markets. It is a prerequisite for economic growth and financial stability. But much of our existing reporting framework is based on European legislation, and untangling the threads that have over four decades increasingly entwined the reporting regimes applicable to UK and other EU businesses is going to be a significant challenge.

With this in mind, ICAEW’s Financial Reporting Faculty will begin work soon on a short but important report which will set out suggested answers to some of the key questions that financial reporting policy makers will face in the coming months and years.

Below I’ve set out some of the higher level questions we might seek to address. 

On IFRS reporting:

  • Is the U.K. committed to IFRS and their use by UK listed companies and around the world?
  • If so, how can we ensure that the voice of the UK as a global financial centre is heard loud and clear in international debates about international financial reporting, specifically at the IASB and other institutions of the IFRS Foundation, but also in the wider world?
  • Should the UK as an IFRS jurisdiction simply accept the standards issued in future by the IASB, establish a national IFRS endorsement mechanism, or continue in some way to participate in the existing EU mechanism?
  • If a national endorsement mechanism is the answer, where should responsibility lie and what should its main features be?
  • In future, if the EU moves away from IFRS as issued by the IASB, will UK accounts still be deemed 'equivalent' for EU listing purposes if the UK remains on full IFRS?
  • Whatever decision is taken about endorsement, should the UK seek to maintain influence at EFRAG and over EU accounting developments generally, given that those developments may affect UK interests indirectly, including in respect of 'equivalence'?

On UK accounting more generally:

  • What does Brexit mean for the future role of the Financial Reporting Council and the UK’s reputation for innovative approaches to corporate reporting and corporate governance?
  • Are there specific, less welcome provisions of recent EU directives now reflected in UK law that should be reversed as a priority, such as some of the changes to the small company regime and the new requirements for non-financial reporting by large companies, or does the need for continuity and stability for business take precedence over changes to the law during the first few years of post-EU Britain?
  • Does Brexit provide an opportunity in the longer run for a more profound review of UK company law, with a deregulatory outcome in mind - rationalising and simplifying the scope and content of the accounting provisions and revisiting the balance between law and standards?

I’d welcome any thoughts on these matters over the next few weeks, specifically at this stage on whether we’re posing the right questions as we begin to develop the Financial Reporting Faculty’s thought leadership paper on this topic. You can email me at nigel.sleigh-johnson@icaew.com

Anonymous
  • Nigel

    The issue of separate endorsement mechanism could cause equivalence problems legally in the US and EU. For example IFRS as endorsed for use in the EU is not the legally the same as IFRS as published by the IASB, and could be different from IFRS endorsed for use in the UK. We need to avoid the issue of having to file three sets of audited accounts if a company has a listing in EU, UK and USA. FRS  102 for smaller firms should continue, although without the restrictions of the EU Accounting Directive the UK would be free to adopt IFRS for SMEs.

  • Nigel

    As a general rule the UK should be committed to IFRS. The only question is whether the IASB insistence on fair values and the doubts over the extent to which IFRS are prudent- as required by existing UK law. Thus the UK should have its own endorsement mechanism. The UK should continue to talk to the  IASB. Given that much of EU company law is derived from UK law the UK should seek to influence EU accounting and corporate governance in the future.

    These are all matters which can be decided in due course. UK company law introduces EU regulations and can continue to do so until any new arrangements are worked out. Therefore it would appear that there is no need for urgent changes to UK law and indeed any great repeal act ought to make clear that UK company law will continue until any detailed UK changes are required.

    Roger Collinge

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