Financial reporting standards may not be top of the list when it comes to the Brexit negotiations but this is an issue that could have profound implications for UK firms, and those working in finance and accounting.

The biggest issue, says Peter Hogarth, senior technical partner at PwC, is what will happen to listed companies which are currently required to report under International Financial Reporting Standards (IFRS), which as an EU directive would no longer automatically apply post-Brexit.

In reality, the most likely option is for the UK to transfer the EU directive into its own laws. “The option to just scrap it and go back to UK reporting standards is not really credible,” he says. “If we put the US to one side, most major economies in the world either report under IFRS or something close to it, so for the UK to go the other way and still claim to be a major financial sector isn’t really viable.”

Veronica Poole, global IFRS leader and UK national head of accounting and corporate reporting at Deloitte, also agrees this is the most sensible route. “From the point of view of the large multinational businesses, IFRS is very much the answer they wanted in the first instance and it’s the answer they’re likely to want to continue into the future,” she says. “Looking at our own client base, that is certainly the case. Borders no longer exist, and you need some comparability and transparency across markets and businesses, and that means you need a common language.”

What options are available ?

It may not be so simple, however. “There is a second question if the starting place is IFRS,” says Poole. “In Europe IFRS is brought into law through an endorsement mechanism. The question is whether we replicate that process in the UK or have a different process which brings in those standards, having assessed them for suitability for the UK public good.

“If you look around the world, there are some jurisdictions which take IFRS as is without any endorsements. It immediately becomes law. You can be on any point in the spectrum, from being very heavily involved in the process to very lightweight, to all the way with no endorsement at all. Where are we going to land? That I anticipate will be the most politically charged and exciting question.”

The most likely outcome, believes Hogarth, is for the UK to develop its own endorsement mechanism, possibly under the auspices of the FRC. “It’s an opportunity to make that mechanism more efficient,” he says. “But any proposed amendment to IFRS before being adopted in the UK should be set at a very high hurdle indeed.”

The positive impacts

There could be other implications for post-Brexit reporting too. Steve Collings, director of Leavitt Walmsley Associates and a member of the UK GAAP Technical Advisory Group at the Financial Reporting Council, says there is potential for an increase in disclosures.

“It’s possible there could be financial statements for small companies and micro-entities, because some commentators feel that the disclosure for micro-entities in particular is quite diluted,” he says. “But we’re not sure what changes are likely to take place when Britain leaves the EU.” One thing that won’t happen, though, is any change to the new UK GAAP. “There isn’t going to be any backtrack to the old UK accounting standards,” he says.

Brexit could also present some opportunities to iron out issues that exist between IFRS and UK company law, suggests Hogarth. “There are instances where companies report under FRS 102 because they’re part of the UK GAAP which still have to think about what company law requires, and that’s not very helpful,” he says. “Post-Brexit it would be a good longer-term project for the Department for Business, Energy and Industrial Strategy (BEIS) and the Financial Reporting Council to remove those inconsistencies and make accounts easier to prepare.” Rules on distributable profits could also be looked at, he adds.

What can you do right now?

For now, businesses and accountants need to look out for a consultation from BEIS, which should give some indication as to where the legislation is headed. “We need to answer that question about IFRS because if it is an endorsement then we need to know what process it is, how we can educate constituencies to feed into that process and how we can influence accounting standard-setting,” says Poole. “That will all depend on the consultation.”

For now, though, Collings suggests it’s very much a case of business as usual. “There’s not going to be a massive change, and EU regulation continues to be adopted in the UK,” he points out. “Inherently accountants don’t like change but it has to happen, and there will be sufficient time given to plan.”

Nick Martindale is a freelance journalist, editor and copywriter. He regularly contributes to a wide range of national and business media, including The Telegraph, Raconteur supplements in The Times and HR magazine.