Changes to UK’s Corporate Reporting Regime with Brexit
With Brexit finally a reality, it has changed the UK’s legal framework for accounting and corporate reporting, which is set to operate independently of EU law from January 1st 2021. Companies will now need to focus on the ramification for their year-end reporting. Initor Global UK will help look at some main areas companies need to focus on while reviewing their accounting for trade and service offerings in the below:
Series of transformations in various areas:
The period of transition between the UK and EU eliminated the introduction of the new tariff; which was valid till December 31, 2021.
From 1st Jan 2021 onwards, the country must follow the trade and financial legislation of the World Trade Organisation, forcing the UK to enforce trade barriers. Brexit also implies supplementary authorizations and paperwork that corporates from EU are required to endure in their trade with the UK.
The UK region once shared trade deals with 70 countries, while it was with the EU and Post-Brexit agreed to continue the same trade deals with 60 of these countries. Moreover, Brexit granted sovereignty, facilitating the UK to maintain independent marketing contracts with the US, Japan, Australia, and New Zealand.
With its declaration, the uncertainty caused by the Brexit referendum was reflected in the sudden devaluation of its currency. It also impacted the automobile industry, as Britain was a regular consumer of essential automobile components and an exporter of finished cars to Europe.
The financial services which were once affiliated to the EU with stringent regulations already diverted $1 trillion worth of investments from its grounds to its neighbouring countries.
Key Changes to Britain’s Corporate Reporting Structure with Brexit
A unified set of UK adopted international accounting standards will be available on the UK Accounting Standards Endorsement Board (UK EB) website
Modification made due to Brexit in the UK’s corporate regime has affected business as it changed the existing regulations. Yet, for numerous businesses, the accounting and corporate administration will remain constant.
Below are the fundamental changes brought that affects corporate reporting with Brexit:
Changes In The Preparation Of Annual Accounts
- While formulating annual accounts for financial years starting from and after January 1, 2021, all companies should need to restore EU adopted International Accounting Standards (IAS) with the UK- approved IAS.
- On January 1, 2021, the UK-adopted IAS and EU adopted International Financial Reporting Standards (IFRS) will be considered the same.
- At the same time, while preparing yearly monetary accounts that concluded on December 31, 2020, can continue to employ the EU ratified IAS; as it ends before the termination of the transition period. It is also pivotal that some corporates need to take additional litigations.
Changes In Managing Accounts Of The UK Incorporated Companies
- Brexit also distorted the multitude of ways that public companies encompass to raise their capital and securities on a restricted market. It is imperative to manage accounts using the UK installed international accounting standards(IAS) for all the UK incorporated companies with securities that align with the UK’s regulated market, from the beginning of the financial year and after January 1, 2021.
- Similarly, corporates can continue to employ the EU installed IAS for accounting periods that proceed before January 2021. The possibility of restating these accounts after the given time has also been eliminated.
UK Parent Companies With EEA Subsidiaries
- Any UK incorporated parent corporations with a subsidiary reliance in the European Economic Area (EEA) should review the country’s reporting prerequisites where the subsidiary is established and comply with the regional regulatory provisions from January 1, 2021.
- It cannot continue to depend on the parent’s non-financial information statement as the UK subsidiary will be producing the same. In that case, it needs to issue separately from January 2021 onwards.
EEA Listed Companies
- On the other hand, a UK firm functioning in the province of EEA should operate according to the reporting requirements in that country. Again, a UK public parent company with an EEA listing is answerable to its jurisdiction’s requirements.
Alterations in Audit Privileges
- The subsidiary audit privilege will not be provided to firms with EEA parents.
- It accounts that all EEA firms enrolled in UK’s subsidiaries should audit their accounts immediately for the financial years that begin on and after the transition period.
- The small subsidiaries that are registered to the country are also subjected to audit immunity.
- Furthermore, there is an exemption for EEA parent entities from the preparation and filing of dormant subsidiaries. They need to assemble distinct annual accounts with Companies House for the financial years that begin on or after January 1, 2021.
Transparency Regulations In the UK Markets
- Every public entity of the UK that trades on the country’s restrictive markets has to abide by the rules of transparency and divulgence initiated by the Financial Conduct Authority (FCA) and the regulations issued by the Prudential Regulation Authority (PRA). These public entities include banks, building societies, insurers, issuers of securities.
- Besides, UK issuers that are only acknowledged on EEA trading will not be subjected to these Transparency Rules initiated by the Financial Conduct Authority(FCA) from the beginning of January 2021.
Regulations on the UK GAAP
- Currently, permits to issue the UK Generally Accepted Accounting Practice (UK GAAP) for the corporates that do not need to formulate consolidated accounts are instigated by the Transparency Directive.
- The companies that are authorized to use UK GAAP to trade on the regulated market of EEA should prepare an additional set of accounts that satisfy the Transparency Directive provisions with the end of the transition period.
Initiation of s. 401 Companies Act 2006 on EEA Parent Companies
- Since the UK has an equivalent EU- adopted IFRS, EEA parent companies that have enterprises in the UK using EU adopted IFRS are excluded from presenting consolidated accounts at the UK sub-group level according to the s. 401 of the Companies Act 2006.
Creation of identical group accounts
- Moreover, the UK intermediate parent companies will be aided from the s. 401 exclusion for the financial years from the beginning of January 2021.
- If the EEA parent elicits group accounts identical to UK law. If not, then it needs to formulate united reports at the UK sub-group level.
Alteration in the Accounting Standards
- Another visible change was establishing the UK Accounting Standards Endorsement Board (UK EB) to amend or renew IFRS into a body of the UK that adopted international accounting standards after December 31, 2020.
- The power to approve standards in the Board will remain on the Secretary during the intermediate period.
- The Board has started its function at the outset of 2021.
What next Post-Brexit for UK’s Corporate Reporting?
Everyone has anticipated that Brexit will change the UK’s economy in the next 50 years, as it diminishes the financial liability that it vowed to the EU in the prior years. Brexit brings independent trade relations and distinctive rules that were promised in the referendum to make the UK a sovereign entity. Corporate regimes are yet to be significantly altered, and within a few years, we can expect stringent strategies to be taken to ensure smooth and systematic operations.
Retain your stability during the evolving times of the Brexit implementation with the support of Initor Global UK
During the times of constantly amending policies and regulations in Britain, many accounting firms and CA practitioners may face a tough time. Handling the complexities of diverse businesses during these times of implementing the Brexit plan can take a toll on your overall operations. Our dynamic team’s reliable support can help you survive the various modifications to come in such a scenario.
Initor Global UK, with its top-class accounting outsourcing services, is ready to partner with the accounting entities in the UK. Consult our accounting and finance experts to address your numerous issues! Schedule a call today!