BREXIT: The Future of IFRS

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Customer Care No. 91-11-45562222
BREXIT The Future of IFRS
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• 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.

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• 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.

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• 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.

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• C) BREXIT and the future of IFRS
• IFRS has come a long way in the last decade. The
  mission of the IASB is to develop IFRS Standards
  that bring transparency, accountability and
  efficiency to financial markets around the world.
  Over 140 countries use IFRS today. The IASB and
  its United States counterpart, the Financial
  Accounting Standards Board (FASB) have also
  worked jointly on a number of projects with the
  objective of aligning IFRS and United States
  Generally Accepted Accounting Principles
  (USGAAP).
•    BREXIT raises questions on the way forward
  for IFRS.
•   ? Political and economic differences and
  sovereignty issues could pose a challenge to
  uniform accounting regulations.
•   ? Divergences between USGAAP and IFRS could
  assume different proportions.
•   ? The work-in-progress projects of the IASB
  could become more challenging to implement.
• Such and other related questions may be
  considered hypothetical at this point but
  nevertheless cannot be ignored.
• D) Conclusion
• 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.
• One has to adopt a wait and watch policy to the
  developments that will take place in the global
  accounting world in the coming days be it USGAAP,
  IFRS or IFRS for SMEs. IND-AS stakeholders need
  to watch this space!

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