Mercia Newswire January 2021

Brexit related amendments to UK accounting standards

A few days before the end of 2020, the FRC issued amendments to UK accounting standards reflecting the effects of Brexit. Many of the individual mark-ups are simply to change the phrase "EU-adopted IFRS" to "adopted IFRS", referring to the process of the new UK Endorsement Board and replacing references to the IAS Regulation with references to the Companies Act. The changes will have little impact to entities in the Republic of Ireland, where the adoption of IFRS continues to be made by the EU. The updated note on legal requirements emphasises that the requirement to prepare group accounts in accordance with IFRS now applies to groups where the parent is listed on a UK regulated market rather than a market regulated in an EU member state.  

New UK Endorsement Board for IFRS standards begins operations

Now that Britain has left the EU, listed entities in the UK need to apply IFRS as endorsed by the UK in their group accounts, rather than EU-endorsed IFRS as before. The new UK Endorsement Board has grandfathered all previous EU endorsements and has now launched its new website showing its progress on existing projects. This will now be the relevant source for UK preparers using IFRS. The UKEB performed its first endorsement in early January 2021 relating to the phase 2 IBOR reform amendments, as also seen in UK standards.  

Guidance for period ends spanning Brexit date

The FRC has issued guidance for IFRS preparers with accounting periods that span the official implementation period end date for Brexit ie 31 December 2020. The guidance includes suggested wording for companies describing their basis of preparation and reminding readers that a move to UK-adopted international accounting standards is not a change in the basis of accounting that would require a prior year restatement.  

Group accounts exemption

In recent weeks we have received a number of technical queries from worried clients, concerned that because of Brexit they were going to have to start preparing group accounts when previously there was an exemption available. It has been commonplace for intermediate parent undertakings to take exemption from preparing consolidated group accounts on the basis that a more senior parent company is doing so. For those intermediate parent undertakings who had an overseas parent located in the EEA preparing those group accounts this exemption is no longer available under section 400 of the Companies Act 2006 for accounting periods commencing on or after 1 January 2021, as going forward this exemption will only apply where the group accounts are prepared by a UK parent. A similar exemption continues to exist though in section 401 of the Act in respect of overseas parents, so provided that the nature of the exemption is being correctly disclosed in the intermediate parent’s accounts there is unlikely to be any practical change to the reporting requirements of intermediate parent undertakings going forward and exemption from preparing group accounts can continue to be taken.  

Audit exemption

Any subsidiary undertakings taking advantage of audit exemption under section 479A of the Companies Act 2006 are reminded that one of the consequences of Brexit is that for accounting periods commencing on or after 1 January 2021 the parent undertaking providing the related guarantee must be established in the UK. Any subsidiaries that currently rely on a guarantee provided by an overseas parent located in the EEA will no longer be able to do so, and consequently find themselves no longer able to take advantage of audit exemption.

UK auditors in Ireland

ne consequence of the UK’s new status outside Europe is that UK-registered auditors would be classified as third-country auditors, and so Irish companies, being still in the scope of EU law, would not be able to appoint them as statutory auditors. However the FRC has signed a memorandum of understanding with the Irish regulator, the IAASA, such that a UK audit registration will allow any UK auditors to sign audit reports in Ireland.  

Amendments to FRS 102 - interest rate benchmark reform

The FRC has issued amendments to UK accounting standards relating to phase 2 of its work on interest rate benchmark reform. Effectively LIBOR as a benchmark will be withdrawn imminently and the amendments address issues arising when arrangements such as loans or leases make reference to this type of benchmark so contractual cash flows change when the benchmark is removed. The amendments also insert various disclosures if this is relevant to the entity.  

UK quality management standards

The FRC has opened a consultation on the adoption of two new quality management standards, ISQM(UK)1 ‘Quality management for firms that perform audits or reviews of financial statements, or other assurance or related services engagements’ and ISQM(UK)2 ‘Engagement quality reviews’. These two new standards will introduce a new risk-based approach that requires firms to adopt a tailored system of quality management based on their nature and circumstances, which is proposed will become effective for periods beginning on or after 15 December 2022. Interested parties have until 19 March to comment on the proposals.

New AML helpsheet

ICAEW has released an updated helpsheet helping practitioners in applying the latest anti money laundering rules. The helpsheet examines how client due diligence can be performed electronically at the identification, risk assessment and verification stages. It includes a range of imaginative ways of gathering information online, such as using reverse google image searches and gathering information from Streetview.