Subsidiaries without Public Accountability: Disclosures

IASB Proposals

The IASB added this project to its research pipeline in response to feedback on the Request for Views—2015 Agenda Consultation. Stakeholders asked the IASB to permit a subsidiary that reports to a parent applying IFRS Standards in its consolidated financial statements to apply IFRS Standards with reduced disclosure requirements.The ED proposes a voluntary IFRS Standard for eligible subsidiaries that sets out:

1. the disclosure requirements for a subsidiary electing to apply it; and
2. the disclosure requirements in IFRS Standards that it would replace.

The IASB proposes that a subsidiary would be eligible to apply the draft Standard if, at the end of its reporting period, that subsidiary:

1. does not have public accountability; and
2. has a parent that produces consolidated financial statements available for public use applying IFRS Standards.

A company has public accountability if its debt or equity instruments are traded in a public market or if it holds assets in a fiduciary capacity for a broad group of outsiders.The draft Standard uses the disclosure requirements in the IFRS for SMEs Standard as a starting point because they are already tailored to the needs of the users of the financial statements of companies without public accountability and incorporate cost–benefit considerations for those companies but:

1. align terms and language with IFRS Standards
2. update paragraph cross-references

In addition, the IASB compared the recognition and measurement requirements in IFRS Standards and in the IFRS for SMEs Standard to identify any differences. Where differences are identified, the draft Standard tailor the disclosure requirements in IFRS Standards considering users’ information needs by applying the five principles used when it developed the disclosure requirements in the IFRS for SMEs Standard. These principles are summarised below:

1. Short-term cash flows, obligations, commitments and contingencies
2. Measurement uncertainty
3. Disaggregation of amounts
4. Accounting policy choices
5. Liquidity and solvency

A subsidiary would be required to state that it has applied the draft Standard. This statement would be located with the subsidiary’s statement of compliance with IFRS Standards (required by IAS 1 Presentation of Financial Statements).The IASB aims to reduce the cost of financial reporting for subsidiaries that report to a parent applying IFRS Standards while maintaining the usefulness of the subsidiary’s financial statements to users.

See the Table of Comparison - 101 vs IASB ED.

Our planned outreach on this project includes a survey, discussions with stakeholders, and public consultation on our draft comment letter.

Video Explaining the Subsidiaries without Public Accountability: Disclosures Exposure Draft with IASB and UKEB Staff

The UK Endorsement Board (UKEB) Secretariat has published a video exploring the IASB Exposure Draft Subsidiaries without Public Accountability: Disclosures. The Exposure Draft seeks to develop an accounting standard that would permit eligible subsidiaries to apply reduced disclosure requirements as long as the subsidiary applies the recognition, measurement and presentation requirements in IFRS Standards. A link to the video can be found on vimeo.

Hosted by Yousouf Hansye (UKEB Secretariat) and Carlo Pereras (IASB Technical Staff), this video provides an overview of the proposals in the Exposure Draft, giving an insight into the IASB thinking behind these proposals and highlighting the UKEB timeline and forthcoming UKEB outreach events.

UKEB Final Comment Letter (FCL) on the Exposure Draft supports IASB’s efforts to develop an IFRS that would permit subsidiaries without public accountability to apply full IFRS standards with reduced disclosure.

However, the UKEB recommends an extension of the scope to an ultimate parent of a group, that does not itself have public accountability. In addition, the UKEB also proposes further enhancements to the IASB’s main proposals. In particular, on:

• developing the proposed disclosure requirements by implementing a ‘top-down approach’ starting with the full IFRS disclosure requirements and considering exemptions;
• further streamlining some of the disclosures proposed by the ED. Two main areas include the disclosure requirements of IFRS 7 Financial Instruments: Disclosures and IFRS 13 Fair Value Measurement; and
• IFRS 17 disclosure requirements—expressed reservations about supporting the ED proposals for subsidiaries that are not publicly accountable to provide full IFRS 17 disclosure requirements.

The UKEB also noted the concerns of UK stakeholders on the eligibility criteria of the ED which only permits the use of the draft standard by a subsidiary whose ultimate or intermediate parent produces consolidated financial statements in accordance with IFRS. The FCL suggested the IASB to undertake further research and outreach to address this issue at an international level. Failing an international solution, the UKEB thinks that this issue may warrant local jurisdiction-based solutions, for example, by extending the scope as currently set out in the ED to incorporate accounting regimes deemed equivalent by the local listing authorities.