The UK’s Financial Reporting Council (FRC) has sent a letter to audit committee chairs and finance directors to assist with preparations for the UK’s upcoming withdrawal from the EU.

The FRC’s letter is in support of a wider government effort to raise the profile of material that has been developed to help companies prepare for the UK’s withdrawal from the EU, as possible.

In the letter, FRC CEO Stephen Haddrill said: “We encourage companies to provide disclosure which distinguishes between the specific and direct challenges to their business model and operations from the broader economic uncertainties which may be a consequence of the UK’s exit from the EU, and which may apply when companies report.

“Where there are particular challenges posed, we expect these to be clearly identified and for management to describe any actions they are taking, or have taken, to manage the potential impact. In some circumstances this may mean recognising or remeasuring certain items in the balance sheet.”

He continued: “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.

“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. It will be for companies to decide whether exiting the EU uncertainties impact their statements on viability and even their ability to continue as a going concern.”

As it stands, the UK is set to leave the EU on the 31 October with or without a deal on the future relationship between the UK and the EU.

In January, The Irish Auditing and Accounting Supervisory Authority (IAASA) wrote to the leading UK audit firms to give advice on preparations for a no-deal Brexit scenario. The IAASA stated that in the event of a no-deal exit from the EU, UK audit firms will have to register as ‘third country’ auditors to continue their operations in Ireland or for Irish clients.

The FRC echoed this, noting that business may face additional legal and regulatory requirements as UK businesses and professionals will be recognised as coming from a ‘third country’.