Project Initiation Plan - Exposure Draft - Amendments to IFRS 19

Purpose

1This paper sets out the plan to influence the forthcoming proposals for amendments to IFRS 19 Subsidiaries without Public Accountability: Disclosures to be set out in the catch-up Exposure Draft (the 'catch-up ED'), expected to be published by the IASB during late July 2024.

Background

2The IASB issued IFRS 19 Subsidiaries without Public Accountability: Disclosures¹ in May 2024. The standard responds to stakeholders' feedback (mainly from preparers) to permit eligible subsidiaries to apply IFRS Accounting Standards with reduced disclosure requirements (a reduced disclosure framework) – those with a parent that applies IFRS Accounting Standards for its consolidated financial statements.

3In developing the reduced disclosure requirements in IFRS 19, the IASB considered the disclosure requirements in IFRS Accounting Standards issued before 28 February 2021.

4As an interim measure, disclosure requirements in new or amended IFRS Accounting Standards issued or exposed between 28 February 2021 and May 2024 were incorporated in IFRS 19 without reductions because the IASB did not consult on reducing these disclosures when developing IFRS 19. The catch-up ED will therefore consult on reducing these disclosures, applying the principles² that the IASB used in developing IFRS 19.

5In future, each new or amended IFRS Accounting Standard will include consequential amendments to IFRS 19. This will ensure that IFRS 19 remains up-to-date and eligible subsidiaries have reduced disclosure requirements available to them by the time they are required to apply a new or amended IFRS Accounting Standard.

Forthcoming Catch-up ED proposals

6The IASB expects to issue the catch-up ED for this project during July 2024.

7From February to April 2024, the IASB has taken tentative decisions which suggest that the catch-up ED will include the following proposals:

1. Supplier Finance Arrangements - it will remove the disclosure objective related to supplier finance (paragraph 167 of IFRS 19), consistent with the IASB's decision not to include disclosure objectives in IFRS 19 and will add the characteristics of supplier finance arrangements.
2. International Tax Reform—Pillar Two Model Rules - it will remove the reference to a disclosure objective (paragraph 199 of IFRS 19) and will redraft the disclosure requirement related to an entity's exposure to Pillar Two income taxes.
3. Lack of Exchangeability - it will remove the disclosure objective (paragraph 221 of IFRS 19) and disclosure guidance (paragraph 222 of IFRS 19) in relation to the impact of lack of exchangeability on an entity's financial statements.
4. IFRS 18 Presentation and Disclosure in Financial Statements - it will replace the disclosure requirements in IFRS 19 relating to management-defined performance measures with a reference to those requirements in IFRS 18 and remove the disclosure objective (paragraph 137 of IFRS 19) from a disclosure requirement relating to non-current liabilities.

8Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and IFRS 7) - the amendments were issued in May 2024 and included consequential amendments to IFRS 19 in relation to the disclosure requirements related to changes in contractual cash flows. These disclosure requirements were included in full in IFRS 19 and the catch-up ED is expected to include a question to seek views on the IASB's tentative decision not to propose any changes to these consequential amendments.

9Forthcoming IFRS Accounting Standard Regulatory Assets and Regulatory Liabilities (RARL standard) – the catch-up ED will seek views on the IASB’s tentative decision not to develop reduced disclosures at this stage.

Project plan rationale

10The following considerations have shaped the project plan.

The objective of the project is to make narrow-scope amendments to IFRS 19

11The objective of the catch-up ED is to reduce the disclosure requirements in new or amended IFRS Accounting Standards issued or exposed between 28 February 2021 and May 2024. As such, the catch-up ED is expected to propose few reductions in the disclosure requirements for the new and amended IFRS Accounting Standards within the scope of the project i.e., mainly removing the disclosure objectives.

12The Amendments are therefore expected to be narrow in scope with no significant reductions to the current disclosure requirements in IFRS 19.

13IFRS 19 is not yet part of UK-adopted IAS. Therefore, the catch-up ED will not change current practice in the UK until the standard is adopted for use in the UK.

Initial stakeholder feedback did not express significant concerns with the catch-up ED proposals

14The UKEB will need to assess whether the catch-up ED proposals achieve the objective of IFRS 19, in terms of cost savings for preparers (i.e., the disclosures are proportionate) whilst at the same time maintaining the usefulness of eligible subsidiaries' financial statements for users.

15Initial indications are that stakeholders do not have significant concerns with the catch-up ED proposals. At their June 2024 meetings, the Investor Advisory Group (IAG) and the Preparer Advisory Group (PAG) considered the five topics (paragraphs 7-8 above)³.

16IAG members indicated that they focus on the group accounts for the purpose of their analysis and only consider subsidiaries' financial statements on an exceptional basis, if they identify issues in the group accounts that require further analysis.

17PAG members indicated that UK Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) is widely used in the UK. Some members considered that, companies currently using FRS 101 are unlikely to switch to IFRS 19 as the relevant subsidiaries are already providing reduced disclosures whilst complying with IFRS recognition and measurement requirements. In addition, systems are already designed to provide disclosures required by FRS 101. Therefore, for those subsidiaries the cost of transition from FRS 101 to IFRS 19 could be

18significant. Members also recognised that those groups with significant overseas subsidiaries would likely find an international standard on reduced disclosure helpful as it would help reduce cost by aligning all subsidiaries' reporting and reducing the disclosures for countries where no existing reduced disclosure frameworks are in place. Overall, PAG members were supportive of the adoption of IFRS 19 in the UK as an option available to eligible subsidiaries that conclude the benefits outweigh the costs.

Setting up an ad-hoc advisory group is not necessary

19Given the scope and nature of the project, it is not considered necessary to set up a separate, ad-hoc advisory group. The existing UKEB Advisory Groups are well placed to provide feedback on this project.

Project milestones

20A proportionate approach is proposed, incorporating mandatory milestones listed in paragraph 5.3 of the UKEB's Due Process Handbook (Handbook). The table below provides a brief description of the work we have done and that we intend to do as part of this project.

21Future dates are based on current expectations and are, therefore, subject to subsequent modification. The Board will be alerted to any significant changes.

Resources allocated

22Based on this project plan, we consider a project team consisting of one Project Manager and one Assistant Project Manager with technical support and oversight from a Senior Project Director, should ensure the project milestones are achievable. Communications support will be obtained as appropriate.

Detailed project timeline