Subsidiaries without Public Accountability: Disclosures

Background

In August 2015, the IASB published a Request for Views: 2015 Agenda Consultation. Some respondents suggested that the IASB consider permitting subsidiaries to apply IFRS Standards with reduced disclosures. This approach would reduce costs, without removing information needed by the users of the subsidiaries’ financial statements. 

The IASB added a research project to its pipeline in March 2016 and it became active in March 2019. The research project assessed whether it would be feasible to permit subsidiaries that are SMEs to apply the recognition and measurement requirements of IFRS Standards and the disclosure requirements of the IFRS for SMEs Standard with minimal tailoring of those disclosure requirements.

The IASB recognised that the disclosure requirements of the IFRS for SMEs Standard would need to be tailored to reflect differences in the recognition and measurement requirements between IFRS Standards and the IFRS for SMEs Standard. However, the IASB wished to keep the tailoring to a minimum.

The IASB discussed the research results at its meetings between September and December 2019. At its meeting on 28 January 2020 the IASB decided to move the Subsidiaries that are SMEs project from the research programme to the standard-setting programme.

Between October 2020 and January 2021 the IASB discussed issues that were identified during the preparation and review of the analysis and suggested disclosure requirements.

IASB Exposure Draft Subsidiaries without Public Accountability: Disclosures

On 26 July 2021 the IASB published the Exposure Draft Subsidiaries without Public Accountability: Disclosures. The objective is to develop a reduced-disclosure IFRS Standard that would apply on a voluntary basis to subsidiaries without public accountability. The reduced-disclosure IFRS Standard would be part of full IFRS Standards and subject to endorsement in the European Union.

EFRAG Draft Comment Letter

On 30 September 2021, EFRAG published its Draft Comment Letter. In its Draft Comment Letter, EFRAG welcomes the IASB’s efforts in developing reduced disclosure requirements for subsidiaries without public accountability and cautiously supports the proposed scope of the ED.

However, EFRAG recognises that there is also support for the alternative view expressed by Ms Françoise Flores in the Basis for Conclusion of the ED. Therefore, EFRAG has decided to ask constituents for their views on the scope of the ED, including a question to better understand which entities issue insurance contracts and are in the scope of the project.

In addition, EFRAG raises some concerns and provides suggestions to the IASB. For example, EFRAG:

• suggests that the key principles proposed by the IASB in paragraph BC33 of the Basis for Conclusions should encompass cost-benefit considerations;

• highlights the risks of not considering the existing disclosure requirements in IFRS Standards in the light of BC157 when there are no recognition and measurement differences between IFRS for SMEs and IFRS Standards;

• suggests that the reasoning for the exceptions is improved;

• suggests considering the interaction between the disclosure requirements of the ED and the disclosure requirements of the ED Disclosure Requirements in IFRS Standards – A Pilot Approach;
  

• considers that the application of a full set of disclosure requirements for IFRS 17 Insurance Contracts can be burdensome and costly for eligible subsidiaries.

• suggests a number of additional disclosures that it considers relevant for users of financial statements. Nonetheless, EFRAG acknowledges that the assessment of users’ needs in terms of disclosures is difficult and subjective.
  

EFRAG Comment Letter

In February 2022, EFRAG has published its Final Comment Letter in response to the IASB's ED.