FRC encourages firms to prepare for Brexit

The Financial Reporting Council (FRC) has written to UK audit committee chairs and finance directors ahead of 31 October to raise the profile of the government material that has been developed to help companies ensure that they are prepared for the UK’s EU exit.

“Many of you will be well prepared already and will have undertaken significant contingency planning initiatives. That may not be the case for all businesses, nor will it be the case for all of your suppliers, customers and employees. Even businesses which have invested much time in preparing to leave the European Union are well advised to keep their plans under close review,” the CEO of FRC, Stephen Haddrill, said.

In the letter, the regulator sets out a small number of the most critical generic actions companies should consider in advance of the UK’s exit from the European Union.

First, the FRC asks employees to check if they need to apply to the EU settlement scheme to ensure they can continue to live and work in the UK in the event of a no-deal Brexit.

Second, the regulator advises businesses to check whether they face additional legal, regulatory and/or administrative barriers as a result of the UK becoming a “third country” in the event of a no-deal EU exit. It explains that, without a deal, the UK will no longer operate under the EEA regulations for the cross-border trade in services, meaning that businesses will no longer be treated as if they are local. 

The regulator also tells businesses to make sure their suppliers and customers have considered the impact of and are prepared for the UK’s exit from the EU, to ensure the least amount of disruption. 

Next, Mr Haddrill tells business owners to engage with their local chambers of commerce or business adviser and attend a Brexit business readiness event. 

“Chambers of Commerce have been provided with extensive central government support to aid local businesses. Your own business advisers will also have extensive information. I would encourage you to engage with this support and encourage your suppliers and customers to do likewise,” Mr Haddrill said. 

In terms of corporate reporting requirements around Brexit, Mr Haddrill explains that “the broad uncertainties that may still attach to exiting the EU when companies report will require disclosure of sufficient information to help users understand the degree of sensitivity of assets and liabilities to changes in management’s assumptions”.

“We expect that many companies will want to consider a wider range of reasonably possible outcomes when performing sensitivity analysis on their cash-flow projections and which should be disclosed and explained,” the CEO said.

He concluded: “Not all companies will require extensive disclosure, but where sensitivity or scenario testing indicates significant issues, relevant information and explanation should be reflected in the appropriate parts of the annual report and accounts, for example, in the impairment disclosures.”

For additional information, Mr Haddrill advises employers to visit www.gov.uk/brexit.