BREXIT – Accounting and Corporate Reporting during the transition period

Now that the UK has left the European Union with effect from 31 January 2020, the Statutory Instruments for the accounting and audit sector that the UK Government passed last year will not come into force until the end of the transition period which is at 11.00pm on 31 December 2020.

The statutory instrument, The Accounts and Reports (Amendment) (EU Exit) Regulations 2019 (SI 2019/145), removes references to the European Economic Area (EEA), and replaces these with references to the UK throughout the Companies Act 2006 and other supporting regulations.

Major changes that will come into force at the end of the Transition Period are as follows:

• Under the amendments to the Companies Act, s.384, an entity may now only qualify as a small entity if they are not admitted to trading on a UK regulated market, rather than an EEA market.
• For intermediate parent companies, the current exemption from preparing consolidated accounts in the Companies Act 2006, s.400 will only be available where the immediate parent company that prepares consolidated accounts is based in the UK, rather than being an EEA parent.
• The similar exemption in s.401, which is currently available where there is a non-EEA parent preparing ‘equivalent’ consolidated accounts, will be expanded to include groups with an EEA parent.
• Under amended s.394A, a dormant company will only be exempt from preparing and filing accounts if they have a guarantee from a UK parent. Currently, this exemption is wider as it includes EEA parents.
• For financial years beginning after 31 December 2020, UK incorporated companies and groups, including those admitted to trading on a UK regulated market, that currently use EU-adopted IAS will be required to prepare accounts using UK-adopted international accounting standards.
• From 1 January 2021 intermediate UK companies with an immediate EEA parent may not be exempt from producing group accounts.