Brexit: The Impact on Accounting
Want to learn about the influence Brexit has on the accounting industry? Unsure of the impact Brexit will have on financial reporting standards? Let’s explore…
What is Brexit and why is the United Kingdom (UK) leaving?
The word “Brexit” is short for “British exit”, says BBC News. It is used to discuss the United Kingdom’s decision to split from the European Union (EU).
In June of 2016, a referendum was held. Here, voters were asked whether the UK should leave or remain in the EU. 52 percent voted to leave. Since then, negotiations over the withdrawal agreement have been taking place between the UK and the other EU countries.
What are the effects of Brexit on the accounting and finance industries?
As the UK moves through Brexit and beyond, accounting professionals and members of the financial industry are faced with uncertainty. A primary example of this, according to Business Insider, is the economic dependence on the financial services industry. In the UK, there are as many as 693,000 people working at law firms and accountancy practices. However, in the coming year, with the sudden legal disruption, Brexit could diminish the UK’s position as a premier financial hub.
What does Brexit mean for the accountants and their clients?
Primarily, accountants will feel the effects of Brexit through their customers. A recent article covers some examples:
- Businesses may relocate
- Supply chains could be disrupted by customs checks
- Possible skill shortages through changes to free movement
The main risk is a hit to the clients’ sense of stability. Accountants can expect that their clients will be looking for more advice, assistance with planning, forecasting, and managing working capital.
What are the implications for financial reporting standards?
Organizations in the UK must comply with the new Financial Reporting Standards (FRS) 101 and 102. Following a Brexit, these standards may change again. A blog by our partner, Caseware UK, discusses concerns around the change and states that:
It is very unlikely that we will see a retreat back to British accounting standards, regardless of whether we remain in the EU or not. The UK has always been a key advocate of the International Financial Reporting Standards (IFRS) and the Financial Reporting Standards (FRS) were specifically developed by the Financial Reporting Council (FRC) to allow for pre-existing UK legislation such as the Companies Act 2016.
That aside, there are changes in regulations that could come into effect. The blog also provides an example of the Alternative Investment Fund Managers Directive (AIFMD). With Brexit, AIFMD will no longer apply in the UK which could lead to some modified reporting structures.
What happens next?
Time will tell. Brexit is currently set to take place on March 29, 2019.
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