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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 isthe 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 theEuropean
Parliamentand theCouncil of the European Unionbefore 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
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adopted Care
by the
EU91-11in the form of regulations, which are published in the Official
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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.,
theAccounting Regulatory Committee(ARC)andEuropean 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 advicethe European Commission prepares a
draft Endorsement Regulation.This Regulation is adopted only after afavourable voteof
the Accounting Regulatory Committee (ARC) andfavourable 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 raisesquestions on the way forward for IFRS.
Political and economic differences and sovereignty issuescould pose a challenge to
uniform accounting regulations.
Divergences between USGAAPand IFRS could assume different proportions.
Thework-in-progress projectsof 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
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