The Implementation Of The IFRS In The Uk: Concerns And Reactions



Before leaving the EU, the UK government requires the companies to admit their securities, both equity and debt for trading purposes on any kinds of regulated markets for the beginning of each financial year or after 1st January 2005 as per EC Regulation 1606/2002 (“The IAS Regulation”). This was also required that any member state of the EU should use “International Accounting Standard” while preparation of their consolidated financial statements in this context. Now, this is also important to know about the international accounting standard in detail. Therefore, concerning this discussion, it can be stated that the international accounting standard defines the standard which has been issued by the IASB and its interpretation has been issues and analysed by IFRS Interpretations Committee which has been gradually endorsed by the EU.

Background And Overview

Following this situation, this can be identified that as per the UK time at 11.00 P.M., 31st December 2020, on the day of the “Implementation Period Completion” IAS regulation will no longer be applicable to the UK as they have already adopted newly regulated “International Accounting Standards”, therefore, IFRS. Therefore, it can be stated that all the companies across the UK need to adopt IFRS standards while preparing their consolidated financial statements (Peña and Franco, 2017). Now in this context, this is also important for the researchers to remember, there will be only a UK-based IFRS system rather than EU-based IFRS standards. There are some arguments that where the companies incorporated by the UK will adopt the UK-based IFRS standards while operating in any other stated under the EU. Hence this is important for them to use both UK-based and the EU-based IFRS standards while operating in any EU-based states for the UK incorporated organisations. But if the EU considers the UK-based IFRS standards are equivalent to their IFRS standards and confirmed that by writing, the companies can adopt the UK-based IFRS standards while operating in the EU.

On the other side, UK has repealed the IAS regulations on the day of IP completion, therefore UK has also ceased the IFRS standards by the EU immediately. This has created more problems for those companies whose accounts have been approved after the IP completion day as they won’t be able to apply the IFRS standards which didn’t endorse by the EU by or before the day of the IP completion for that period. In this situation, to resolve this issue the UK government has adopted a policy where companies need to adopt the IFRS standards which should be endorsed by the UK after the day of the IP completion (Elsayed et al. 2021). In accordance to this situation this needs to be noted that entities or organisations who are transitioned from EU-based IFRS standards to the UK-based IFRS standards after the IP completion day for the first time shouldn’t apply the IFRS 1.

Previous Regulatory Position in UK: IFRS Implementation

Since the year 2005, it has been observed that in the UK, companies that traded shares on a regulated market is bound to prepare consolidated accounts under IFRS as it was adopted in the EU through complex endorsement procedure as per EU Law. Moreover, the UK Government is observed to give options of EU endorsed IFRS instead of UK GAAP to all of the entities in formulating their financial statements. This has involved all subsidiaries in the stock market listed parent entities as well as private companies, partnership firms, and self-employed individuals but no charities (André, 2017).

On the other hand, another scenario of previous regulatory position of UK is showing that IFRS voluntary take up has been rare. That means many companies or groups have had to follow both accounting records of IFRS and UK GAAP. That is also fundamentally considered principally because of two core factors. The first factor is that uncertainty over effect on tax liabilities, given that initiating point for UK tax on profit trading would be the accounting profit estimated as per either EU endorsed IFRS or UK GAAP as applicable. And, on the contrary, the second factor has shown impact of IFRS adoption on distributable profits.

Additionally, it is also to be seen that review is required for the low take-up of IFRS in context to commitment towards convergence of UK GAAP with IFRS. Over many years, Accounting Standards Board (ASB) has sought for mirror enhancement within international accounting alongside most current UK Financial Reporting Standards (FRS). Therefore, on 31st December, 2020, when the Brexit transition period has ended, then IFRS in UK would take place by replacing EU counterpart. However, UK has been subjected to EU rules until the end of the transition period (Collis, Jarvis and Skerratt, 2017). This has been referred to as Implementation Period (IP) Completion Day in EU (Withdrawal Agreement) Act, 2020. As a whole, it can be said that the Brexit Impact or UK’s leave from the EU has been the major reason that has pushed the necessity to develop a new separated UK endorsed IFRS instead of EU endorsed IFRS for preparing financial statements.

UK Endorsement

This has been already discussed that the UK has adopted a new mechanism for the IFRS endorsement on the day of IP completion and in this situation new legislation has been provided. Therefore, it can be stated that the IFRS standards which was adopted by the UK is the extension of the EU-based IFRS standards which was initiated by the EU prior to the IP completion day. But this could be diverged throughout the time as the timing of the endorsement of the IFRS standards by the UK could be different from the EU endorsement of the IFRS standards. In terms of the responsibilities, this can be identified that the state secretary could be considered as the responsible one for the implementation of the UK-based IFRS standards, but he will not be the sole responsible person as this entire process will be delegated to the UK Endorsement Boards (UKEB) (Chaibi, 2018). This delegation requires to provide the secondary legislation in the time of early 2021.

It is seen that with UK leaving the EU and endorsing IFRS and adoption would be implacable on and from 1st January, 2021. And, current legislations of The International Accounting Standards and European Public Limited-Liability Company (Amendment etc) (EU Exit) Regulations 2019has stated that all IFRSs, which have been endorsed by EU would become UK adopted IFRS at the end of the transition period. Followed to that, with the delegation of responsibility to designated body comprising the Secretary of State the endorsement body will be established. And, at the time of Endorsement Board establishment, the UK FRC would undertake IFRS implementation influencing activities in relation to Endorsement Board staff. Every effort would be taken for ensuring that comment letters on IASB’s project and formal UK positions would involve input from the stakeholders alongside FRC’s Corporate Reporting Council (Harakeh et al. 2019). Furthermore, in conjunction to the UK endorsement activities, the FRC would also publish certain Feedback Statements. It would summarise all the major and prime comments that has been received as well as to be explained the way they were implemented and considered during the finalisation of UK position.

On the other hand, it can also be found that with the UK endorsed IFRS and its implementation there are certain parties to whom it would concern or affect. For example; all UK entities that has applied EU adopted IAS in their individual or consolidated accounts would be affected. During the transition period from 11 pm on 31 January 2020 to 11pm on 31 December 2020, the companies would continue to apply EU adopted IAS. Therefore, it is seen that for the transition period end; companies with fiscal year starting on or prior to 31st December, 2020 but ending after this date would continually apply EU adopted IAS. And, on the other hand, all entities financial year starting after 31st December, 2020 would apply UK adopted IAS.

On the contrary, the argument may rise in terms of whether there will be any difference between UK endorsed IFRS and EU endorsed IFRS. And, in this context, it can be said that there might be certain possibilities that UK adopted IFRS and EU adopted IFRS would be different at certain aspects. Specifically, it is seen that IFRS 17 Insurance Contracts yet not been endorsed by EU and it has been highly unlikely that it would be by 31st December, 2020. Moreover, there are also two narrow scopes for amendments to IFRSs that has not been endorsed yet and certain number of few more amendments is to be issued by IASB prior to end of the year (Almaharmeh et al. 2021). Therefore, it can be said that if UK is observed to consider different view on standard’s endorsement or amendment or concludes the process at different time, then there might be possibilities that UK endorse IFRS and EU endorse IFRS would diverge.  Get to know more about IFRS standards from assignment help uk experts team of SourceEssay.

This has already been discussed that all the companies across the UK needs to incorporate and comply with the UK-based IFRS standards for trading their securities on the UK-regulated market in this context. This won’t be applicable if they comply with the UK-regulated market. In accordance to this it can be identified that there is certain regulated market of the UK which has been maintained by the “Financial Conduct Authority” or FCA where companies can trade their securities, these are, such as,

  • LSE or London Stock Exchange
  • The London Metal Exchange
  • AQSE main Market
  • ICE Future Europe
  • Euronext London
  • International Property Securities Exchange (IPSX)

Apart from this, the companies or entities whoever has started their operations after IP completion day needs to comply with the UK-based IFRS standards and those companies who has been incorporated in the EEA should maintain the EU-based IFRS standards (Hsu and Reid, 2021).

Concern : Implementation Of IFRS In UK

Significantly, in accordance with the implementation of UK endorsed IFRS, it can be further seen that there might arise certain concerns. Specifically, the concern would arise in terms of changes in financial reporting to company law. As it is observed that with UK leaving the EU and followed to the transition period, Company Law in UK would change. Brexit-concerned changes to UK company law came into effect followed to end of transition period that is after 31st December 2020. The changing concern was that previously UK company law referred to EEA or EU regulated market. However, at present these references would be amended for referring to UK only.  The first and foremost concerning aspect would be small and medium-sized companies and groups. With the reference being changed to company whose shares are being traded in UK market only, the definition of ineligible group would be less restrictive. And, that is also through making majority of companies qualify as small. On the other concerning aspect would be exemption from formulating group accounts for intermediate parents. In this regard, it has been found that UK intermediate parent company is exempted currently from formulating any group accounts (Ammar and Mardini, 2021). This is observable during at the time when UK intermediate parent companies as well as subsidiaries would be involved within consolidated accounts of EEA parent (CA2006 s400). However, when reference in s400 is transformed into consolidated accounts of UK parent company, then the exemption within this section would not be available any longer. That is also visible when parent company is established in any one of the EEA states. Furthermore, changes in accounting framework and accounting process of dormant subsidiaries would also be another concerning area that would face changes through the implementation of UK endorsed IFRS. Get constant help from essay typer team of SourceEssay in case you need more information on UK based IFRS.

However, despite all the major changes, the major concern would emerge in terms of IASB’s new insurance accounting standard IFRS17. According to the former chair of European Parliament’s Economic Affairs CommitteesIFRS17 would permit the insurers for decreasing the liabilities not merely due to unrealised gains. But it would be for anticipated income in future providing the capital appearance. Therefore, the in-depth evaluation regarding this matter develops the concern that there would be no proper accounting. This is because; the unrealised gains, as well as the anticipated income, cannot be utilised to service debt, investing in other assets or having no value as collateral (Sari and Sarumpaet, 2019). Hence, based on these discussions, it can be implied that the true and fair picture on the standard might not exhibit with this UK endorsement of IFRS.

Reactions: Implementation of IFRS in the UK

Along with the above discussion this is important to examine the impact or reaction after implementation of IFRS in the UK in this context. Following this situation, it can be stated that both cost and benefits of IFRS could vary from organisation to organisation. Most of report from different organisations have presented that the implementation of IFRS could consisted of different costs which further comprises of several factors, like, IFRS project team, training of IT staff, internal audit as well as taxation, identification of external technical advice and many more. Therefore, according to the most of the researcher’s implementation of IFRS in the UK and incorporated organisations could incur several costs. But apart from this, it is also natural to recognise IFRS implementation has some positive sides also as implementing IFRS can incur some benefits. As per the reports of different companies and coursework help online uk based team, IFRS implementation could create some favourable impact on the company or entity’s net income (Arafat et al. 2020). On the other side, if there is an increase in disclosure which was associated with the implementation of the IFRS, that kind of situation therefore could result lower cost of capital, the value of the shares could be higher and the higher ratio of market-to-book. But contrarily other researchers have argued that this kind of situation could vary as sometimes situation could be changed. In accordance to this discussion, it can be stated that increased disclosure of IFRS standards could be less tangible. Any companies disclose certain information or data and share that information with their institutional investors for maintaining their reputation and goodwill, thus that information become more specific and less tangible. Therefore, if any entities could have a good financial strength and reputation, they would be able to access the capital market more easily (d’Arcy and Tarca, 2018). On the other side, it can be stated that the organisations which have most strong reputation to maintain financial reporting, if they implement non-disclosure standards and policies they could suffer more in this context and start to withhold the information.


Furthermore, it has also been stated that the impact of implementation of IFRS could have on the company’s capital structure. Therefore, implementation of IFRS standards in the UK and its incorporated countries could create some positive impact on them as they would be able to identify their capital structure in a proper way which could suit them efficiently.  Therefore, it can be stated that although this is important for all the incorporated firms within the UK to implement IFRS standards, still the costs of the implementation are not the same in this context. Therefore, the standard setting boards of the UK needs to consider all those implementation costs effectively, so that all companies could comply with IFRS standards in a familiar way.

Reference List

Almaharmeh, M.I., Almasarwah, A. and Shehadeh, A., 2021. Mandatory IFRS Adoption and Real/Accruals Bases Earnings Management in the UK. ACRN Journal of Finance and Risk Perspectives10.

Ammar, S. and Mardini, G.H., 2021. Enterprise resource planning enabling segmental information reporting practices of UK‐FTSE 100. Accounting & Finance61(1), pp.1205-1237.

André, P., 2017. The role and current status of IFRS in the completion of national accounting rules–evidence from European countries. Accounting in Europe14(1-2), pp.1-12.

Arafat, I., Dunne, T. and Ahmed, A.H., 2020. Splitting Accountability Hairs: Anomalies in the Adaptation of IFRS for SMEs in the UK and Ireland. Accounting in Europe17(2), pp.183-203.

Chaibi, H., 2018. Research and development expenses under IFRS mandatory implementation: a value relevance approach. Economic and Business Review20(3), pp.423-437.

Collis, J., Jarvis, R. and Skerratt, L., 2017. The role and current status of IFRS in the completion of national accounting rules–Evidence from the UK. Accounting in Europe14(1-2), pp.235-247.

d’Arcy, A. and Tarca, A., 2018. Reviewing IFRS goodwill accounting research: Implementation effects and cross-country differences. The International Journal of Accounting53(3), pp.203-226.

Elsayed, N., Ammar, S. and Mardini, G.H., 2021. The impact of ERP utilisation experience and segmental reporting on corporate performance in the UK context. Enterprise Information Systems15(1), pp.61-86.

Harakeh, M., Lee, E. and Walker, M., 2019. The differential impact of IFRS adoption on aspects of seasoned equity offerings in the UK and France. Accounting in Europe16(1), pp.106-138.

Hsu, Y.L. and Reid, G.C., 2021. Stated preferences for the adoption of IFRS and UK GAAP: case study vignettes. Asian Journal of Economics, Business and Accounting, pp.20-30.

Peña, H.F.P. and Franco, J.B., 2017. Impact of IFRS on the quality of financial information in the United Kingdom and France: Evidence from a new perspective. Intangible Capital13(4), pp.850-878.

Sari, E. and Sarumpaet, S., 2019. Conservatism Under IFRS In Indonesia. INTERNATIONAL JOURNAL OF SCIENTIFIC & TECHNOLOGY RESEARCH8(6), pp.16-21. Protection Status
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