Brexit Articles

Posted in Brexit News
at 2016.10.29
With 0 Comments

A) Introduction
On June 23, 2016, Britain voted to leave the European Union. In an unparalleled referendum, the “Leave” votes prevailed 52% to 48%. Global markets have witnessed turmoil as the world woke up to new uncertainties, risks, challenges and a new reality. Economies and businesses worldwide have to watch out for political and economic events as they unfold. Global corporations have to brace up for coping with the associated risks and uncertainties.
A related question that arises is the future of IFRS. The International Accounting Standards Board (IASB), a body based out of the United Kingdom, issues IFRSs. The standards issued by this body need to be blessed and endorsed by the European Parliament and the Council of the European Union before it becomes part of “EU Endorsed IFRS” literature that are directed to be used by the EU listed Companies.
B) A Background
i) The European Union
The European Union (EU) has been an economic and political partnership between 28 countries that covered the European continent substantially. In addition, 3 European countries, not being EU member States, agreed to abide by EU laws and regulations. The 31 countries made up the European Economic Area (EEA). The European Union enacted certain laws (Directives) that require compliance by the EU and the EEA members.
ii) EU and Corporate Financial Statements
One of the above mentioned Directives is 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports. The EU decided in 2002 to adopt a regulation to apply IFRS in the EU to certain financial statements.
Providing the initial thrust and global momentum to International Financial Reporting Standards, the European Union took a historic decision to abide by IFRS effective 2005. Accordingly, from 1 January 2005 International Financial Reporting Standards (IFRS) applied compulsorily for the consolidated financial statements of listed companies in the EU. IFRS are adopted by the EU in the form of regulations, which are published in the Official Journal of the European Union. Regulations are directly applicable to all Member States.
The EU Accounting Regulation created a process for endorsing IFRS Standards for use in the European Union together with two new consultative and advisory organizations, viz., the Accounting Regulatory Committee (ARC) and European Financial Reporting Advisory Group (EFRAG). The key accounting directives currently applicable to the EU are highlighted in the table herein below.

The process followed in the EU is that once a standard is issued by the IASB, the European Commission requests endorsement advice from EFRAG. Additionally, the European Commission requests an effects study on the pronouncement under consideration for endorsement. During the process EFRAG holds a number of consultations with interest groups and finally issues the advice to the European Commission whether the standard meets the criteria for endorsement for use in the European Union. Based on this advice the European Commission prepares a draft Endorsement Regulation. This Regulation is adopted only after a favourable vote of the Accounting Regulatory Committee (ARC) and favourable opinions of the European Parliament and the Council of the European Union. Following adoption, the Regulation is published in the Official Journal of the European Union, at which time it becomes effective.
Listed companies in the European Union including United Kingdom, apply “IFRS endorsed by the EU” in the preparation and presentation of consolidated financial statements.

Accounting and reporting standard setting and global convergence require consensus building and political processes to be followed. BREXIT may, therefore, pose newer challenges to the IASB in the coming days both from the point of improvement and achieving global convergence.

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