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Investors in the U.K. want the U.K. Financial Reporting Council to continue adhering to international financial reporting standards once the nation leaves the European Union, FRC spokesman Peter Timberlake told Bloomberg BNA Jan 24.
“Investors have told us they want the U.K. to retain the use of IFRS, ” he said in an e-mail response to questions about the U.K.’s initiative to exit the EU, a process known as Brexit.
FRC’s plans for post-Brexit standard setting remain uncertain as the U.K. Supreme Court—the nation’s highest court—said Jan. 24 that the Conservative-led government couldn’t proceed with its Brexit plans unless parliament gave consent.
The court said in a landmark 8-3 ruling that government ministers must win approval from parliament for legislation to trigger Article 50 of the 2009 Treaty of Lisbon, which would begin the process of ending the U.K.’s membership in the EU.
The Lisbon Treaty enables member nations to withdraw from the EU and is one of several international agreements that member nations have signed over the years.
FRC, which establishes accounting, auditing and actuarial standards for the U.K. and the Republic of Ireland, currently adopts IFRS standards after they’ve been issued by the International Accounting Standards Board and gain EU endorsement.
That procedure likely will need to be overhauled, though, if the U.K. parts company with the EU.
“We can assume the UK will need a process to ‘adopt’ IFRS once we leave the EU and presumably no longer use ‘EU-adopted’ IFRS,” Timberlake said.
The potential impact on EU-adopted IFRS already incorporated into U.K. remains foggy as well.
Once Brexit negotiations conclude—a procedure that could take up to two years—the government is expected to introduce into parliament legislation to formally withdraw the U.K. from EU membership. This legislation would terminate the current primacy of EU law in the U.K.
The government has indicated that this measure—which some observers have dubbed the Great Repeal Bill— “will contain delegated powers to enable the Government to adapt any laws on the statute book that originate from the EU so as to fit the UK’s new relationship with the EU,” according to a November 2016 analysis by the House of Commons.
The Great Repeal Bill, the Commons report said, would require parliament to evaluate large portions of U.K. law to determine which EU laws and regulations to keep.
“The EU Treaties not only concern the international relations of the United Kingdom, they are a source of domestic law, and they are a source of domestic legal rights many of which are inextricably linked with domestic law from other sources,” the Supreme Court said in its decision.
EU standards for accounting, auditing and company reporting have been incorporated into various U.K. directives and regulations over several decades.
They also form part of such laws as the U.K. Companies Act, Timberlake said.
“It is unlikely that those standards could all be overturned with a single vote given how enmeshed they are with other legal acts and statutory instruments,” he said.
As a result, winnowing out EU accounting and auditing standards could entail lengthy assessments of U.K. statutes and rules—and, in any case, the nation’s accountancy professionals and company executives might want parliament to leave EU measures intact.
FRC’s discussions with audit firms and professional bodies have found no desire, for instance, to reverse the 2014 EU Audit Regulation and Directive (ARD), Timberlake said.
The council last year began implementing ARD— which set new requirements in such areas as ensuring auditor independence and restricting provision of non-audit services—following parliamentary approval.
In response to the Supreme Court ruling, Prime Minister Theresa May indicated the government would forge ahead with legislation—which must be approved by the House of Commons and the House of Lords—to invoke Article 50.
May has signaled her intention to formally notify the EU by the end of March about the U.K.’s withdrawal, but the Scottish National Party said in a Jan. 24 statement that it might introduce dozens of amendments for parliamentary debate to Article 50 legislation.
Still, the governing Conservative Party appears likely to prevail in its desire to launch Brexit, as the opposition Labour Party leader Jeremy Corbin has said that Labour wouldn’t block the process.
Regardless of the Brexit outcome, Timberlake said, it’s “vital” that the U.K. remains “a global center of excellence for accountancy, audit and actuarial work.”
In addition, the country must hold onto its talent in these professions, he said—though the U.K. already is facing the loss of thousands of jobs in the financial sector as companies outline plans to move at least some of their operations to the EU in response to Brexit.
“In short the attraction of the U.K. as a destination and home for investors must be maintained,” Timberlake said.
The U.K. Supreme Court's decision is available at https://www.supremecourt.uk/cases/docs/uksc-2016-0196-judgment.pdf
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