TAKEAWAYS
The International Accounting Standards Board (IASB) introduced a new, reduced disclosure framework for subsidiaries, IFRS 19 Subsidiaries without Public Accountability: Disclosures, on 9 May 2024. The objective of this new framework is to reduce the cost of preparing financial statements under IFRS accounting standards for subsidiaries that are not publicly accountable, while maintaining the usefulness of information by tailoring to the needs of users of these subsidiaries through the removal of not-so-relevant disclosures.
In brief, IFRS 19 is a voluntary IFRS accounting standard. One can view this standard as a culmination of “reduced” disclosure requirements for 33 accounting standards while the recognition, measurement and presentation requirements in other IFRS accounting standards continue to be applicable for these subsidiaries.
Specifically, IFRS 8 Operating Segments, IFRS 17 Insurance Contracts and IAS 33 Earnings per Share are excluded from IFRS 19. This would mean that if an entity that applies IFRS 19 is required to apply IFRS 17 or elects to apply IFRS 8 or/and IAS 33, that subsidiary would be required to apply all relevant disclosure requirements in those standards. In addition, three other IFRS accounting standards, namely IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements, are not within the scope of IFRS 19 as these standards do not contain any disclosure requirements.
In addition, one should not confuse IFRS 19 with the IFRS for SMEs accounting standards that is a standalone accounting framework with its own recognition, measurement, presentation and disclosure requirements.
At the end of the reporting period, an entity may elect to apply IFRS 19 if:
An eligible subsidiary can apply IFRS 19 in its consolidated or separate financial statements, and it is required to disclose that fact as part of its general IFRS accounting standards compliance statement in its financial statements.
IFRS 19 adopts the same definition as IFRS 10 for public accountability where an entity has public accountability if its equity or debt instruments are traded in a public market, or it holds assets in a fiduciary capacity (for example, banks and insurance companies). IASB clarifies that entities holding assets in a fiduciary capacity for reasons that are incidental to their primary businesses are not publicly accountable. Examples of such entities are travel and real estate agents, schools, charitable organisations, and sellers that receive payment in advance of delivery of goods and services such as utility companies.
IFRS 19 is effective for reporting periods beginning on or after 1 January 2027, with early application permitted. In the first year of IFRS 19 application, subsidiaries are required to disclose comparative information for current-year amounts unless IFRS 19 or another IFRS accounting standard permits or requires otherwise.
Yes, the election to apply IFRS 19 is performed on an annual basis. Entities are allowed to elect the application of IFRS 19 in one reporting period and then revoke the application in the next reporting period. In addition, entities can elect to reapply IFRS 19 in subsequent reporting periods.
An entity that applies IFRS 19 in the current reporting period but not in the immediate-preceding period is required to provide comparative information for all amounts reported in the current period’s financial statements, unless IFRS 19 or another IFRS accounting standard permits or requires otherwise. Similarly, comparative information is also required for all amounts reported in the current period’s financial statements if the entity applied IFRS 19 in the preceding reporting period, but elects not to (or is no longer eligible to) apply it in the current period and continues applying IFRS accounting standards.
The requirements for changes in accounting policies in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors are not applicable for electing IFRS 19 or revoking an election of IFRS 19. This would mean that there are no adjustments required to be made to opening balances, that is, no retrospective application is required.
Similarly, electing or revoking an election to apply IFRS 19 does not, on its own, result in an entity meeting the definition of a first-time adopter in IFRS 1 First-time Adoption of International Financial Reporting Standards.
Eligible subsidiaries would first apply the recognition, measurement and presentation requirements in the respective IFRS accounting standards. After which, they would apply the disclosure requirements in IFRS 19. However, guidance on applying disclosure requirements in respective IFRS accounting standards are still applicable to them.
For example, IFRS 19 paragraph 40 requires the application of specific paragraphs in IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Hence, IFRS 19 is intended to work alongside other IFRS accounting standards and not be read as a standalone accounting standard. Please see the extract below (in blue) on the applicable disclosure requirements for IFRS 5.
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
38. An entity shall disclose, in the notes in the reporting period in which a non-current asset (or disposal group) has been either classified as held for sale or sold:
(a) a description of the non-current asset (or disposal group);
(b) a description of the facts and circumstances of the sale, or leading to the expected disposal, and the expected manner and timing of that disposal; and
(c) if applicable, the reportable segment in which the non-current asset (or disposal group) is presented in accordance with IFRS 8.
39. If either paragraph 26 of IFRS 5 or paragraph 29 of IFRS 5 applies, an entity shall disclose, in the reporting period of the decision to change the plan to sell the non-current asset (or disposal group), a description of the facts and circumstances leading to the decision and the effect of the decision on the results of operations for the period and any prior periods presented.
Disclosure requirements in IFRS 5 that remain applicable
40. An entity shall apply the disclosure requirements in paragraphs 12, 13, 33(a), 33(c) and 34 of IFRS 5. The reference to paragraph 33 in paragraph 13 of IFRS 5 shall be read by the entity as referring to paragraphs 33(a) and 33(c) of IFRS 5.
The development of IFRS 19 arose from stakeholders’ feedback on the complications in preparing subsidiaries’ financial statements (be it based on local accounting standards, IFRS for SMEs accounting standards or even IFRS accounting standards themselves) when the parent prepares consolidated financial statements applying IFRS accounting standards. Henceforth, IFRS 19 presents an opportunity for cost savings from the simplification of reporting for the subsidiary, without compromising the usefulness of financial statements based on IFRS accounting standards. In addition, if a subsidiary has been applying IFRS for SMEs accounting standard, IFRS 19 presents an opportunity for the subsidiary to step up to IFRS accounting standards with fewer disclosure requirements.
However, the application of IFRS 19 would require the subsidiary to first understand the requirements in IFRS 19 and then assess if applying IFRS 19 would reduce the reporting burden for the subsidiary. All these will translate to additional costs and efforts for the subsidiary. Hence, an assessment of the costs and benefits for the election of IFRS 19 is required to be made by the subsidiary, especially if certain disclosures that are not required under IFRS 19 might still be required by its parent entity’s financial statements.
In July 2024, IASB issued an Exposure Draft (ED) with proposals to update IFRS 19 with reduced disclosure requirements for new or amended accounting standards issued between 28 February 2021 and 1 May 2024.
For more details, please see here for a copy of the ED. A copy of ISCA’s comments on this ED can be found here.
Jezz Chew, CA (Singapore), is Associate Director of Professional Standards, ISCA.
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