IFRS Transition following Brexit - FRC Guidance
The Financial Reporting Council (FRC) has issued guidance for UK companies preparing accounts in accordance with international financial reporting standards (IFRS) where the accounting period commences before the expiry of the Brexit transition period (11pm on 31 December 2020) and ends after it. The guidance deals with the version of IFRS to be applied, and the disclosures to be made in the accounts and audit report. The guidance can be accessed here
As the transition period has now ended, UK companies preparing their accounts in accordance with IFRS will be required to follow UK-adopted IFRS, rather than EU-adopted IFRS as previously. This requirement applies in respect of accounting periods which commence on or after 1 January 2021 (in other words, after the end of the transition period). As at 1 January 2021, UK-adopted IFRS and EU-adopted IFRS are identical. Subsequently, however, the two sets of IFRS may diverge, as a result of differences in decision-making by the UK and EU authorities on the adoption of amended IFRS standards and interpretations, or the timing of the effect of their decisions.
Where an accounting period runs across the expiry of the transition period (which will include 31 December 2020 year ends, given that expiry occurred at 11pm on that date), transitional requirements and disclosures apply. These vary according to whether the company has transferable securities which are traded on a UK regulated market (these are listed here and include the main market of the London Stock Exchange, CBOE Europe Equities Regulated Market, ICE Futures Europe, IPSX, the London Metal Exchange and NEX Exchange – but notably not the Alternative Investment Market (AIM)).
Companies without transferable securities traded on a UK regulated market
These companies are required to apply EU-adopted IFRS as they stood at 31 December 2020. However, there is a concession whereby they are permitted to apply any standards or amendments to standards which are adopted by the UK after that date.
The FRC recommends that the basis of preparation wording should state that the accounts have been “prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006”. This wording will also be applied in the audit report.
The accounting policies should make clear exactly which standards and amendments have been applied.
Companies with transferable securities traded on a UK regulated market
In these cases, where the company is required to produce consolidated accounts, the financial Conduct Authority’s Disclosure Guidance and Transparency Rules require that those accounts must be prepared in accordance with international financial reporting standards as adopted from time to time by the European Commission in accordance with Regulation (EC) No 1606/2002 as it applies in the European Union. This includes any standards, interpretations, and amendments to standards adopted by the European Commission after 31 December 2020.
Where this applies, the FRC recommends that the basis of preparation wording should state, in addition to the Companies Act 2006 wording set out above, that the accounts are “prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union”. This wording will also be applied in the audit report.
Again, the accounting policies should give clarity on precisely which standards and amendments have been applied.
Accounting periods commencing on or after 1 January 2021
For all UK companies preparing their accounts in accordance with IFRS, regardless of the trading status of their transferable securities, accounts for periods which commence on or after 1 January 2021 (in other words, after the expiry of the transition period) must be prepared in accordance with UK-adopted IFRS, and the basis of preparation disclosures will be worded in this way.
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