13 February 2020

FRC: Audit, accounting and corporate reporting during the transition period

The FRC and Department for Business, Energy and Industrial Strategy (BEIS) have published joint letters for accountants and auditors with information regarding auditing, accounting and corporate reporting standards during the transition period following the UK’s exit from the EU.

Information for accountants

The Companies Act requires that UK-incorporated companies prepare their annual accounts either in accordance with International Accounting Standards (IAS) that have been adopted by the EU (“EU adopted IAS”), or in accordance with UK Generally Accepted Accounting Practice (UK GAAP) standards.

For financial years beginning after 31 December 2020, UK incorporated companies and groups that currently use EU-adopted 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 to prepare their annual accounts.

During the transition period (TP) there will be no change to the reporting requirements for UK incorporated groups with securities admitted to trading on a UK regulated market: they can continue to prepare their accounts using EU-adopted IAS for the purposes of the Transparency Directive (TD) and Prospectus Directive (PD) as they do now.

For financial years beginning after 31 December 2020 those companies will be required to prepare accounts using UK-adopted international accounting standards.

During the TP UK incorporated parent companies with 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.

Information for auditors

Now that the UK has left the European Union the UK has become a ‘third country’ to the EU. However, for audit firms that carry out the audits of non-EEA companies (including UK companies) that are listed on an EEA regulated market, there will be no immediate requirement to register as a third country auditor. Audits that will be signed off and published during the TP can continue. After the end of the TP 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.

Existing statutory auditors who have registered with the UK recognised professional bodies based on their having passed an aptitude test after obtaining an EEA qualification will continue to be registered after the end of the TP.

EEA qualified auditors working in the UK who are not already registered here as a statutory auditor, will have until the end of the TP to begin the process of obtaining eligibility to practise in the UK by passing an aptitude test.

Information for accountants

Information for auditors

Related comments: 

FRC and BEIS guidance on audit, accounting and corporate reporting during the Transition Period is ‘essential reading’, says ACCA

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