The Financial Reporting Council (FRC) and Department for Business, Energy and Industrial Strategy (BEIS) have published guidance for accountants and auditors confirming that there will be no substantive changes during the transition period post Brexit
The letters are targeted at accountants and auditors, and detail the various statutory instruments that have been introduced over the last two years to ensure that the UK legislative system is intact after Brexit day.
The information is relevant for the transition period only, which is due to end on 31 December 2020.
Communication on changes that come into effect after the end of the transition period to reflect the UK's future trading relationship with the EU, will be issued in due course.
Accounting and corporate reporting
The letters clarify that there will be no major changes to accounting and corporate reporting during the transition period, described as the implementation period by the government in the Brexit Withdrawal Agreement Act 2020.
For financial years beginning after 31 December 2020, UK incorporated companies and groups that currently use EU-adopted International Accounting Standards (IAS) will instead be required to prepare accounts using UK-adopted international accounting standards. There will be no change for UK incorporated companies that use UK GAAP – FRS 102, for example – to prepare their annual accounts.
For financial years beginning during the transition period, companies will continue to use EU-adopted IAS. Any new or amended standards adopted by the EU during the transition period can continue to be used.
During the transition period, UK incorporated parent companies with European Economic Area (EEA) based immediate subsidiaries, that themselves are intermediate parent companies, can continue to rely on the equivalence of UK GAAP for the purpose of exemptions for their EEA based subsidiary.
However, BEIS/FRC said that ‘such companies [should] use the transition period to check the relevant reporting requirements in the EEA State where the subsidiary is based because at the end of the transition period, the corporate reporting requirements of the UK’s Companies Act 2006 (CA 2006) may not be deemed automatically equivalent to the EU’s Accounting Directive.
During the transition period there will be no change to the reporting requirements for UK incorporated Groups that have a debt listing on an EU regulated market. After the end of the TP, such Groups may need to comply with local EEA regulatory provisions, for the EEA country where they have listed their debt.
Post transition, this may include the need to prepare accounts, using EU-adopted IAS or IAS as issued by the International Accounting Standard Board (IASB) for the subsidiary, for the parent company or for the whole group.
This will be in addition to the requirement to produce accounts in the UK for domestic filing purposes.
The main thing to note is that there is no change for UK and EEA auditors and firms, and their clients, during the transition period.
The various statutory instruments relating to auditors will come into effect on 31 December 2020, when the transition period is completed.
Professional qualifications will be recognised until transition day, with subsequent recognition to be negotiated as part of the final exit agreement.
Audit reports on EEA companies that are due to be signed and published during the transition period can be sign-offed by UK auditors until these audits during the TP, as they did before 31 January 2020.
After 31 December 2020, or completion of the transition period, audit firms carrying out the audits of non-EEA incorporated companies, including UK incorporated companies, with securities listed on an EEA regulated market, will need to register with the relevant EEA competent authority to become a third country auditor.
The EU Audit Regulation and Directive (ARD) will continue to apply in the UK during the transition period, as it did before 31 January 2020.
After the end of the TP, the ARD will continue to apply, subject to certain amendments, as domestic, retained EU law. Further information on how retained EU law will apply in the UK after the end of the transition period will be issued in due course.
All UK public interest entities (PIEs), including banks, building societies, insurers or issuers of shares or debt securities that are admitted to trading on UK regulated markets, will continue to be subject to the requirements in the Disclosure and Transparency Rules issued by the Financial Conduct Authority (FCA), and other rules issued by the Prudential Regulation Authority (PRA), for an audit committee.