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On 31 January 2020 the UK left the EU. Or did it? From a financial reporting perspective, very little has changed.
The UK has now entered a transition period – or Implementation Period (IP) to quote the legislation – which is due to end on 31 December 2020 (IP completion day). During this period the UK is no longer a member of the EU but continues to be subject to EU rules.
During the transition period the ‘old’, or pre-Brexit, regulatory regime continues to apply. In other words, UK companies will continue to apply either EU-adopted IFRS or UK GAAP in their accounts. This regime applies for accounting periods beginning during the transition period, even if the accounting period ends after the 31 December 2020.
Exemptions which are dependent on EU status will also continue to apply, for example an intermediate parent company that is the subsidiary of an EU parent can continue to take advantage of the exemption from preparing group accounts (Companies Act 2006 s400) for the time being.
The transition period comes to an end on 31 December 2020 at 11.00pm UK time. A new regulatory framework will apply for financial statements prepared for accounting periods beginning on or after 1 January 2021.
After transition UK companies currently applying EU-adopted IFRS will apply UK-adopted IFRS. In the short-term UK and EU-adopted IFRS are expected to be identical as all extant EU-adopted IFRS will be brought into UK law and become UK-adopted IFRS as at 31 December 2020.
More problematic is that current references to the EU or EEA in company law will be replaced on 31 December 2020 with references to the UK. This will be particularly relevant to companies with EU subsidiaries or parent companies seeking exemptions, for example from the preparation of group accounts and filing of dormant company accounts. This is considered in more detail in the recent joint statement by the FRC and the Department for Business, Energy and Industrial Strategy BEIS) on Accounting and Corporate Reporting During the Transition Period.
The Financial Reporting Faculty will be issuing further guidance on the implications for financial reporting of the UK leaving the EU and we welcome your views and suggestions. Please email the faculty at email@example.com.