Audit and accounting firms receive details of the UK framework for audit and reporting at the end of the Brexit transition period

The United Kingdom (UK) has left the European Union (EU) and accounting firms need to follow the new procedures set out in the UK’s corporate reporting framework which came into effect on 1 January 2021. Firms should be aware of these changes having received letters detailing them from the UK Government towards the end of last year.

Firms need to read and understand these letters in order to ensure that they, and their clients, adhere to the requirements. In many cases, the situation regarding auditing and reporting will not be greatly changed for companies. However, all companies that have cross-border relationships in the European Economic Area (EEA) or use International Financial Reporting Standards (IFRS) have to understand and comply with the accounting and reporting requirements that are referenced in the letters.

Basics of the UK’s corporate reporting framework from 1 January 2021

Companies that are incorporated in the UK and that currently use EU-adopted IFRS must use UK-adopted international accounting standards in financial years that start following the UK’s exit from the EU. This means that from 1 January 2021 the new standards apply.

However, it’s worth noting that the new standards are the same as the EU-adopted IFRS that companies have previously used. This means that companies should easily be able to transition between using different sets of standards.

Further considerations following the UK’s leaving of the EU

There are other factors, outlined in the letters issued to audit and accounting firms, that they and their clients need to be aware of. Some highlights of these factors include:

• There are changes to the Transparency Directive that currently enables the use of UK GAAP by companies that do not have to produce consolidated accounts. In future, companies that use UK GAAP in relation to securities traded on a regulated EEA market are likely to be required to produce accounts that comply with the relevant Transparency Directive.
• A UK intermediate parent company that has a parent in the EEA can benefit from the exemption in s.401 of the Companies Act 2006 in certain circumstances. If the parent uses EU-adopted IFRS, or produces accounts that are equivalent to those required in UK law, there is no requirement to produce separate consolidated accounts at group level in the UK.
• An incorporated subsidiary in the UK that has a parent in the EEA will now have to produce its own non-financial information statement if it is within scope.
• Subsidiaries that have an EEA parent can no longer take advantage of an audit exemption. This means that their accounts will need to be audited in financial years that begin from 1 January 2021 onwards.

It’s clear that the transition following the UK’s leaving of the EU should not be too problematic for most companies with the UK adopting a framework that mirrors the EU-adopted IFRS. However, there are some changes, such as those regarding audit, that firms and their clients need to be aware of. So, the best accounting and auditing professionals are ensuring that they are up to date with the changes and their effect on companies in the UK.

If you are an accountancy professional looking for your next role, register with us. If you are on looking to hire an accountancy professional, get in touch.