On March 29, 2017, the British Parliament has given the European Union (EU) the notice that triggered Article 50. Dubbed as ‘Brexit,’ this is the legal mechanism by which the Parliament will be negotiating how Britain will be leaving the EU.
Many commentators have speculated on the financial and economic impact of Brexit on the UK market. However, not enough attention has been given to its implications on reporting and regulation, as observed by the Institute of Chartered Accountants of England and Wales (ICAEW).
Impact of Brexit on Financial Reporting
Whilst not all companies will be affected by Brexit, it is crucial that companies keep abreast with the latest regulatory updates to ensure that they can comply with regulatory requirements. Here’s how the Brexit scenario can possibly impact financial reporting in the UK.
IFRS Reporting Standards
In the UK, most businesses adhere to the standards of the UK Generally Accepted Accounting Principles (GAAP). Depending on the business, the company either adopts the financial reporting standard (FRS) 101 or FRS 102. Over the years, these standards have undergone updates to mirror the International Financial Reporting Standards (IFRS), but with reduced disclosures.
Nick Pearce at Accounting Web speculate that by March 2018, when the UK will have already left the EU, the UK will fully adopt IFRS. This has several benefits for the UK as well as investors looking to make an investment in the country post-Brexit. For one, if the UK fully adopts the IFRS, there will be a consistent set of reporting standards, which is favourable for international investors.
As a result, there will be fewer chances for businesses to find loopholes with which they could deceive or misinform investors when UK businesses’ standard for financial reporting adhere to internationally accepted standards.
Moreover, having a single set of standards will benefit businesses with multiple subsidiaries, particularly when consolidating financial reports. This can be particularly challenging for businesses that deal with multiple currencies.
In conclusion, the impact of Brexit on UK reporting standards remains to be seen. Whether the UK fully adopts the IFRS or not, it is imperative for the UK to remain steadfast in its commitment to quality reporting standards in order for it to maintain its position of influence in the global marketplace.
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