ON May 9, 2024, the International Accounting Standards Board (IASB) issued IFRS 19 Subsidiaries without Public Accountability: Disclosures that allows eligible entities to apply reduced disclosure requirements of the new standard. The standard aims to simplify reporting systems and processes for eligible entities, reducing the costs of preparing financial statements while meeting the users' needs.

Where will the simplifications come from?

The new standard is a culmination of a set of projects of IASB aiming to improve the effectiveness of disclosures in financial statements for subsidiaries, with the aim to simplify the disclosure requirements.

In its 2015 Agenda Consultation, stakeholders suggested that subsidiaries of a parent preparing consolidated financial statements should be permitted to apply a reduced disclosure requirement to reduce cost in preparing financial statements. The feedback showed:

– Subsidiaries applying local generally accepted accounting principles or GAAP or the IFRS for small and medium enterprises (SMEs) accounting standard have recognition and measurement differences between their own financial statements and the amounts reported to their parent for group consolidation purposes; and

– Subsidiaries applying IFRS Accounting Standards avoided this problem but found the disclosure requirements disproportionate to the information needs of the users of their financial statements.

Subsidiaries reporting under a different framework (i.e., IFRS for SMEs) thereby end up preparing two separate books or preparing reconciliations between the two accounting policies. IFRS 19 aims to resolve this by allowing subsidiaries to align their accounting policies with the group and maintain a single set of records. The single set of records will help to improve internal control environment and reduce costs of maintaining two separate financial records.

The reporting simplification in IFRS 19 for eligible subsidiaries will result in cost savings for preparers. Furthermore, the financial statements disclosures will better suit to the needs of the users of those subsidiary financial statements. This will help the subsidiaries provide more focused and relevant information to users of the financial statements.

Who are eligible?

The standard is voluntary for eligible subsidiaries. A subsidiary is eligible if:

– It does not have public accountability (its debt or equity instruments are not traded in a public market, and it does not hold assets in a fiduciary capacity as one of its primary businesses); and

– It has an ultimate parent that produces consolidated financial statements available for public use that comply with IFRS Accounting Standards.

Applying the new standard

IFRS 19 is a disclosure-only standard. An entity applying IFRS 19 is not required to apply the disclosure requirements in other IFRS Accounting Standards except in the following cases:

– Disclosure requirements in other IFRS Accounting Standards remain applicable to an entity applying IFRS 19 are specified in IFRS 19.

– If an entity applying IFRS 19 applies IFRS 9 Operating Segments, IFRS 17 Insurance Contracts or IAS 33 Earnings per Share, it is required to apply all the disclosure requirements in those standards.

– A new or amended IFRS Accounting Standard may include disclosure requirements about an entity's transition to that standard.

Effectivity

The new standard becomes effective for periods beginning on or after Jan. 1, 2027, and earlier application is permitted. If an entity chooses to apply IFRS 19 earlier, it is required to disclose that fact.

Vanessa Grace S. Japson, CPA, CIA, is an audit director of Yu Villar Tadeja & Co.-Mazars in the Philippines. She is currently a Committee Member for Media Affairs of ACPAPP. The views and opinions in this article are that of the author and do not represent that of these institutions.