UK publicly traded companies are currently required by company law to apply IFRS as endorsed and adopted by the EU to their consolidated accounts. All other companies must produce their accounts using either EU-adopted IFRS or UK GAAP. The legislation for company accounts is generally mirrored for other types of corporate entities, for example building societies, limited liability partnerships and friendly societies. So the question arises: what version of IFRS will be applicable to UK entities if and when the UK leaves the EU?
The stated objective of government is to ensure that laws and rules that are currently in place continue to apply as far as possible. The draft legislation laid before Parliament (The International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019) provides that the international accounting standards (IFRS) adopted for use in the UK on the day that the UK leaves the EU will be those that had been adopted by the EU immediately before exit day. In other words, IFRS as adopted in the UK will be identical to IFRS as adopted in the EU on that day.
The draft legislation provides for a national framework for endorsement and adoption of IFRS after departure from the EU. Under the draft legislation the Secretary of State has the power to adopt and endorse IFRS for use in the UK when it meets certain assessment criteria. The intention is that the decision-making function will be delegated to a UK IFRS Endorsement Board, which will be a subsidiary of the Financial Reporting Council (FRC). The Endorsement Board will also be charged with influencing the development of IFRS by the IASB.
The draft legislation also includes provisions relating to European Public Limited-Liability Companies (also known as Societas Europaea or SEs). The draft regulations make consequential amendments and transitional provisions following on from The European Public-Limited Liability (Amendments etc.) (EU Exit Regulations 2018 (SI 2018/1298).
The draft legislation is accompanied by an Explanatory Memorandum which explains the background to the provisions and provides more detail on the changes.
The Financial Reporting Faculty will keep the need for further guidance under review and we welcome your views and suggestions. Please email the faculty at firstname.lastname@example.org.
The International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019 have now been published: http://www.legislation.gov.uk/uksi/2019/685/contents/made
The Regulations, which provide for a UK IFRS adoption framework after EU Exit, were made on 26th March 2019.
An explanatory memorandum is also available: http://www.legislation.gov.uk/uksi/2019/685/memorandum/contents