In its latest report Brexit: implications for financial reporting, ICAEW’s Financial Reporting Faculty suggests that UK plc should continue to apply internationally-accepted accounting standards if the UK wishes to retain its status as a major global financial centre. However, learning from the experience of the EU and other IFRS (International Financial Reporting Standards) jurisdictions, it calls for the UK to develop a new national endorsement mechanism that is smoother and faster than the current EU process – which has been criticised for its complexity.
Dr Nigel Sleigh-Johnson, Head of Financial Reporting, said: “The UK government and other stakeholders should recognise the economic importance of financial reporting in considering the policy implications of Brexit. If UK standards are aligned with, but not identical to IFRS following Brexit, it is likely to make the UK a less attractive market for international investors. As a global financial centre, the UK should continue to adhere to internationally-accepted standards. It should also develop a much simpler and more cost-effective mechanism for the legal endorsement of new and amended IFRS requirements, while seeking to avoid duplication of effort and divergence in the outcome of the UK and EU processes.”
“The call to set up a UK endorsement mechanism comes with a warning. A UK endorsement mechanism should empower a UK authority, whether it’s the Financial Reporting Council (FRS) or another designated body, to reject new IASB standards or interpretations. However, this right should not be exercised lightly, and should be considered only in very exceptional circumstances. The focus should instead be on influencing the development of international thinking and standard setting at a much earlier stage.”
To ensure the endorsement process is robust and transparent, ICAEW calls on the UK government to consults on key features of the new arrangements, including accountability, governance and related issues.
ICAEW also highlights the possibility post-Brexit of making thorough-going changes to UK company law. Nigel said,: “Following Brexit, continuity and stability for business should be the top priority. We should minimise changes to the UK accounting regime during the next few years. However, in due course the government should seize the opportunity for a more profound review of UK company law. This could include simplifying the scope and content of the accounting and related provisions, with a deregulatory outcome in mind”.