The EU mandates the use of International Accounting Standards for the group accounts of quoted companies within the European Union (EU) and this underpins the widespread use of International Standards in Europe and the rest of the world (besides the USA and China who have their own standards). Consequently, and to an extent, UK domestic accounting standards tend to closely follow these International Standards.

There is a view that (along with many other non-accounting matters) Brexit “freedom” from EU constraints, in respect of accounting standards, could allow the UK’s own accounting standards to develop in a way that diverges from International Standards. It is suggested that in the arena of share based accounting, this development may allow the Financial Reporting Council (FRC) Board to relax the scope of share based payment accounting, particularly on smaller companies—where the scope of share based payment accounting for smaller companies has recently been voluntarily extended by UK domestic accounting standards.

This issue is an example of the wider debate that is emerging over the potential benefits of Brexit and whether the need for cross border business efficiency and integration with other advanced economies will simply force UK standards to be in alignment with the standards of other countries (regardless of whether or not the UK remains in the EU).

It may be bold to assume that leaving the EU will in practice result in real freedom for the UK to diverge from international accounting standards and allow a more relaxed application of share based accounting for smaller companies.

Pett Franklin are experts in employee share schemes, executive incentives and share valuation.