After the implementation period (IP) completion day last 2020, policy changes have been imposed on accounting requirements. For the remainder of 2021, we continue to see the impact of Brexit on financial reporting for UK firms and corporations.
The UK’s company laws are mostly derived from its membership of the European Union (EU), but now that it is no longer an official member of the bloc, they are now to fully use the UK-adopted international accounting standards upon preparation of their annual accounts. In this blog, we further elaborate the laborious process of applying new regulations when making financial reports.
UK IFRS Post-Brexit
As Brexit came to a close, the UK ceased to apply EU law into their jurisdiction, which means that the international accounting standards (IAS) issued by the International Accounting Standards Board (IASB) that are endorsed by the EU will no longer be used.
The government introduced the International Financial Reporting Standards (IFRS) standards as adopted by the UK, or in legal terms, the UK-adopted international accounting standards.
From 1 January 2021, all organizations are mandated to use the UK-adopted IAS. The legislation demands all EU-endorsed IFRS be UK-adopted after the transition period. Moving forward, any amendments or new IFRSs need to be endorsed first before being imposed on UK companies.
If you’re starting your fiscal year on or after 1 January 2021, you are required to make the shift from EU-adopted IFRS to IFRS as adopted by the UK. However, for UK-incorporated companies operating in the EU, they need to confirm if they have to apply both accounting standards unless the EU confirms that the UK-adopted IFRS is equivalent to theirs.
On the other hand, if you’re commencing your financial year prior to the IP completion day, you have the option to work your financial reports applying either EU or UK-adopted IAS. How does this work?
If your accounting period:
- started before and ended on or after IP completion day
- started and ended before IP completion day, and IP completion day happened before the end of the period for filing the accounts
then you won’t be able to use EU-endorsed IFRS. With this, the government proffered that such companies adopt any IFRS standards endorsed by the UK after IP completion day.
In the event that an amendment isn’t introduced yet by the EU before IP completion day, entities following the EU-adopted IFRS can apply the modification after they are endorsed for use in the UK on 1 January 2021.
Establishment of UKEB
The British government launched an initiative to endorse new IFRS standards. The Secretary of State for Business, Energy and Industrial Strategy (BEIS) has been given the power to endorse new or amended accounting standards, which in practice, may be delegated to the newly-established UK Endorsement Board (UKEB).
The UKEB is the governing body responsible for influencing, endorsement, and adoption of IAS issued by the IASB for UK companies. This office will represent the UK in the field of IFRS financial reporting. You can visit their website here.
Brexit impact on accounting firms
The disruption of Brexit caused an economic upheaval and risked the UK’s position as a premiere financial hub in the global context. The country has always been an advocate of the IFRS, as seen over the last years of negotiation. And now that they are fully adopting the IFRS, we can expect an upturn in investment since there will be a consistent set of standards to be followed.
Accounting firms will have to face more demanding requirements from their clients due to the increasing complexity of the post-Brexit environment. They are more likely to experience business relocations, supply chain disruptions, and free movement bottlenecks, among others.
In addition, British-qualified accountants are now not automatically recognized in the EU. Some of its member states will require British accountants to take an ‘economic needs’ test to work in the country, while some EU member countries including Germany, Italy, and Spain still acknowledge UK accounting professionals without any restrictions.
These circumstances increase the clients’ need for more financial advice, planning and forecasting assistance, and capital management from their accountants.
Halfway through 2021, firms and businesses are starting to feel the impact of Brexit on financial reporting— its intricacies and elaborate processes. The UK cushions the blow of changes by implementing new legislation that help companies keep up with the modifications subsequent to the IP completion day.
Having a hard time keeping up? We are here to help. D&V Philippines can provide you with accountants who are adept with the latest rulings and legislations in the UK. We can do your books, UK VAT and other tax obligations, and annual filings. You may get your copy of our whitepaper Finance and Accounting Solutions for UK CFOs to learn how our F&A solutions can help you achieve your business goals, or get in touch with us today.