Although there are no financial reporting requirements that relate specifically to Brexit, companies are required to disclose information such as key assumptions about the future, and other key sources of estimation uncertainty and the possible impairment of assets. The impact of Brexit will therefore vary from industry to industry and business to business: those with limited operations in the EU are likely to be less affected by Brexit related risk factors than those with closer ties and doing business on a regular basis. How the directors of businesses assess these risks will have an impact on the numbers and disclosures given in the financial statements. As companies start to report on their December 2018 year ends, and with no final deal currently on the table, there will be significant uncertainty for some. Directors are being encouraged to be as open as possible about the potential impact of these uncertainties on their business.
On 24 October 2018, the FRC issued an open letter to Audit Committee Chairs and Finance Directors about their expectations for reporting for 2018/19 annual accounts, including the effect of Britain exiting the EU. They encourage companies to distinguish between specific challenges to their business from the broader economic uncertainties of Brexit when they report. In the letter they highlight that they expect companies to consider a wider range of reasonably possible outcomes when performing sensitivity analysis which should be disclosed and explained. Due to the timing of Brexit, there may be further clarity after the balance sheet date and therefore a comprehensive post balance sheet events review will need to be carried out and the appropriate adjustments and disclosures made in advance of finalising the financial statements.
The ICAEW has recently issued some guidance on Brexit and Financial Reporting for UK companies reporting under FRS 102. They flag up some areas of the financial statements that may be affected by Brexit (eg fair value measurements and a greater emphasis on possible impairment of assets) and highlight that all areas subject to judgement and estimation uncertainty have the potential to be affected depending on the nature of the business. The guidance also mirrors that of the FRC around carrying out a comprehensive post balance sheet event review. The ICAEW reminds readers that when management are making an assessment of going concern, they need to take into account all available information for a period of at least 12 months from the date the accounts are authorised for issue. Any material uncertainties that cast significant doubt on the entity’s ability to continue as a going concern must be disclosed. The future impact that Brexit may have on a business has to be taken into account in these considerations. As with the FRC, the ICAEW is encouraging businesses to provide information to assist readers of the accounts understand the potential implications of Brexit on the future of the business, even when for smaller companies they may be exempt from doing so.
ONESOURCE Statutory Reporting is a leading global disclosure management tool currently serving 43 countries that includes local language, best practice, country-specific reporting templates, and content updates from the largest accounting firms. With compliant financial statement templates that have country specific GAAP content in the local filing language, your business is empowered to move from trial balance information to completed financial statements within seconds. Utilising the template functionality ensures that any disclosures driven by Brexit can be pushed out to all entities that require them, ensuring consistency and saving time.
Thomson Reuters can help relieve the growing pressures of managing Brexit implications to tax and financial reporting by offering a modular tax technology platform which grows to meet your needs. ONESOURCE uniquely provides embedded knowledge of global requirements alongside a connected portfolio of innovative technology solutions which help to drive comprehensive tax and financial reporting processes across your organisation – and guide you through this period of uncertainty.