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This article was first published in the September 2017 UK edition of Accounting and Business magazine.

About the only thing that is reasonably certain about the UK’s departure from the EU is the date: March 2019, according to EU law. Almost everything else remains deeply unclear, so the impact of Brexit on business for now can be no more than a best guess. The risks and uncertainties that result from this lack of clarity may well need to be reflected in corporate reports. But will the rules change post-Brexit?

First of all, the good news. The impact of Brexit on UK reporting regulations seems limited. Listed companies reporting under IFRS Standards must do so by EU regulation, but this is expected to be incorporated into UK law via the EU repeal bill. The EU requirements for non-financial and financial reporting by all other entities are in the Accounting Directive, which has been incorporated into UK law already.

Less reassuring are the uncertainties over some items in the pipeline. While the UK has implemented the reporting of country-by-country (CBC) basis tax to HMRC under the OECD base erosion and profit shifting (BEPS) agreement, two draft EU directives currently being discussed may take time to complete: the public reporting of tax on a CBC basis, and the common corporate tax base (which includes a common accounting base). Their transposition into national legislation by member states is some way off, so it is unlikely they will become part of UK law before 2019.

The endorsement of IFRS 17, Insurance Contracts, is controversial among some European insurers. It was published in May, with application from 1 January 2021, so its endorsement could fall either side of Brexit.

Clarity will be needed from the authorities – the government or the Financial Reporting Council (FRC) – in plenty of time on these pipeline issues.

After Brexit, UK involvement in the EU’s endorsement mechanism is likely to change. The UK’s significant contributions to the European Financial Reporting Advisory Group (EFRAG) may be reduced or eliminated. Some new system of financial reporting will be needed for listed companies to replace current EU regulation. Possible approaches include:

  • stop applying IFRS Standards and develop separate UK standards
  • continue with EU-endorsed IFRS Standards
  • apply IFRS Standards directly as issued by the International Accounting Standards Board (IASB)
  • continue with IFRS Standards using a UK endorsement mechanism.

The first would seem to run counter to UK policy since 2000 and to a generally more global approach to commercial issues post-Brexit. The second would seem unsatisfactory once the UK has no influence over EU endorsement. The third might seem unattractive for its loss of national control. However, the general policy of UK authorities over the last decade or so has been to ensure that IFRS Standards as issued by the IASB are endorsed by the EU. In ACCA’s view, the global standards ideally should be adopted by national authorities as issued by the IASB and in a timely way. The fourth would have the advantage of ultimate national control but would mean less cost efficiency and delays arising from the need to reassess the issues debated at the IASB.

If there has to be a UK endorsement mechanism, it should be as efficient as possible, and non-endorsement of standards should be avoided. Endorsement should be a binary choice, with no additions or deletions. These were UK policy goals in the years before 2003 when the EU endorsement mechanism and EFRAG were developed.

For non-financial and financial reporting by other companies, any changes post-Brexit would be entirely a matter for the current UK system: the FRC for accounting standards; government and parliament for the law unaffected by EU developments.

Issues for Ireland

The accounting standards for non-IFRS companies are shared by the UK and Ireland. Changes to the FRC’s standards will no longer be constrained by the Accounting Directive post-Brexit. In the longer term, if revisions are made that are incompatible with the directive, or if the directive changes, it may no longer be possible to apply FRS 102 and the other standards in Ireland, and some new arrangement would be needed.

Richard Martin is ACCA’s head of corporate reporting