Post-transition period accounting framework
Anne Adrain summarises the key changes to the post-transition period accounting framework
On 1 January 2021, the UK will have left the EU Customs Union and the Single Market. As a result, we all need to take action to prepare for our new relationship with the EU. This includes preparing for the post-transition period accounting framework.
The Department for Business, Energy and Industrial Strategy (BEIS) has produced a webinar to assist companies in preparation for the post-transition period accounting framework.
For those preparing accounts after the end of the transition period, here is a list of key information that needs to be considered as part of that process.
For preparers of IFRS accounts – which standards should be used?
All UK incorporated companies that are currently required to use EU-adopted IFRS will need to use UK-adopted international accounting standards for financial years that begin on or after 1 January 2021. Where new or amended IFRS are adopted by the UK after the transition period, but before those companies file their accounts for the relevant financial years (i.e. those financial years that straddle the end of the transition period), you can choose to apply any new IFRS adopted by the UK on top of EU-adopted IFRS as they exist at the end of the transition period.
The UK Accounting Standards Endorsement Board will be established to endorse new or amended IFRS issued by the International Accounting Standards Board. Where new or amended IFRS are adopted by the UK after the transition period, but before those companies file their accounts for the relevant financial years (i.e. those financial years that straddle the end of the Transition Period), you can choose to apply any new IFRS adopted by the UK on top of EU-adopted IFRS as they exist at the end of the transition period.
If your financial year ends on 31 December 2020 you can continue to use EU-adopted IFRS as they exist at the end of the transition period for that financial year and UK-adopted international accounting standards for your next financial year.
IFRS users with EEA listing(s)
If you list on an EEA regulated market you will need to check the reporting requirements in the relevant jurisdiction. For instance, you may need to state that your accounts comply with both UK-adopted international accounting standards and IFRS as issued by the IASB.
UK GAAP users
If you use UK Generally Accepted Accounting Practice (UK GAAP) to prepare your accounts, and you do not have an EEA parent or subsidiary, and are not listed in the EEA, you will face no change to your reporting requirements. However, if you are currently using UK GAAP to list securities in the EEA, then from 1 January 2021 you may need to prepare an additional set of accounts that comply with the requirements in the relevant Member State.
Changes to certain filing exemptions
Depending on the structure of your business you may lose certain accounting, audit and filing exemptions you currently benefit from.
If you are an intermediate parent company in the UK with an EEA parent and your parent uses EU-adopted IFRS you can benefit from the s.401 exemption from the requirement to produce consolidated accounts at the UK group level because the UK has granted equivalence to EU-adopted IFRS. If your EEA parent produces group accounts that are equivalent to those required by UK law, then you will also be able to benefit from the s.401 exemption for financial years that begin on or after 1 January 2021.
Removal of certain exemptions
If you are a UK incorporated subsidiary with an EEA parent, you can no longer rely on your parent’s non-financial information statement. If you are in the scope of producing a non-financial information statement, you will need to produce your own for financial years that begin on or after 1 January 2021 and include it in your strategic report. Furthermore, you will only be able to extend your accounting reference period once every five years. You will no longer be permitted to align your accounting reference date with your EEA parent.
If you are a dormant UK registered subsidiary with an immediate EEA parent, you will need to prepare and file individual annual accounts with Companies House for financial years that begin on or after 1 January 2021. The preparation and filing exemptions will no longer be available.
If you are a UK registered large or medium sized subsidiary with an immediate EEA parent, your accounts will need to be audited for financial years that begin on or after 1 January 2021. The subsidiaries audit exemption will no longer be available.
If you are an EEA company with a UK listing and you use EU-adopted IFRS, you do not have to do anything. The UK has granted equivalence to EU-adopted IFRS to prepare financial statements under the FCA’s Disclosure Guidance and Transparency Rules. If you are an EEA company with a UK listing and you use Member State GAAP, for financial years beginning on or after 1 January 2021 you will need to prepare your accounts for the UK using UK-adopted international accounting standards or an equivalent standard.
UK issuers of shares or debt securities that are only admitted to trading on EEA regulated markets will no longer be subject to Disclosure Guidance and Transparency Rules issued by the Financial Conduct Authority (FCA) from 1 January 2021.
Third country companies with EEA listing
If you are a non-UK, non-EEA incorporated company which currently has the FCA in the UK as your home competent authority for the purposes of the Transparency Directive, you will need to select a new home competent authority to be admitted to trading on a regulated market in the EEA and comply with the rules of that relevant EEA competent authority.
EEA companies with UK parent
If you are an intermediate EEA parent owned by a UK parent you may need to produce consolidated group accounts for your EEA sub-group, as well as individual accounts. We would urge you to check with the relevant EEA State to understand what the local position is and whether you can continue to rely on being exempt from producing group accounts as a result of your results being included within the consolidated group accounts of your UK parent.
You can find out more on the transition page of the gov.uk website