19 Feb 2020
The Department for Business, Energy and Industrial Strategy (BEIS) and the Financial Reporting Council (FRC) have jointly published guidance for accountants and auditors detailing changes to accounting, auditing and corporate standards during the Brexit transition period. Here, we take a look at the guidance in detail.
Accounting during the transition period
The guidance outlines that, for financial years beginning after 31 December 2020, UK incorporated companies and groups that currently use EU-adopted International Accounting Standards (IAS) will be required to prepare accounts using UK-adopted standards. The guidance stipulates that there will be no change for UK incorporated companies that use the UK Generally Accepted Accounting Practice (UK GAAP) to prepare their accounts.
During the transition period, there will be no change to the reporting requirements for UK incorporated groups with securities admitted to trading on a UK-regulated market. For financial years that begin during the transition period, companies will use EU-adopted IAS.
Where new or amended standards are adopted by the UK following the transition period but before companies file their accounts for the relevant financial years, there will be two options. Companies will be permitted to either continue to use the EU-adopted IAS as they existed at the end of the transition period, or choose to apply the new UK-adopted IAS. These new standards will include new or amended accounting standards used by the BEIS Secretary of State or the UK Endorsement Board.
In the transition period UK companies with cross-border presence in the European Economic Area (EEA) can continue to rely on the equivalence of UK GAAP for the purpose of exemptions for their EEA-based subsidiary. There will be no changes to the reporting requirements for UK public companies with EEA listing.
The guidance stresses that, during the transition period, there will be no change to the UK's accounting and corporate reporting framework.
Auditing during the transition period
The BEIS guidance outlines that if an individual is approved to conduct audit work in the EEA based on a UK audit qualification, then they will be permitted to continue to practice during the transition period.
However, how UK auditors are recognised in order to carry out audit work in the EEA once the transition period ends is 'likely to be subject to negotiations with the EU'.
The guidance highlights the fact that now the UK is no longer part of the EU, it is regarded as a 'third country' by the bloc. The guidance stresses that firms that carry out audits of non-EEA companies will not be required to register as a third country auditor. Once the transition period comes to an end, auditors performing the audits of non-EEA incorporated companies with securities listed on an EEA-regulated market will be required to register with an EEA-competent authority in order to become a third country auditor.
In regard to group audits, during the transition period there will be no change for audits of groups across the UK and the EEA.
Within the guidance, the BEIS states that the information is only relevant during the transition period, which will end on 31 December 2020.
Accountants and auditors should consider the guidance carefully, and assess whether the changes will impact their day-to-day activities.
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