The International Accounting Standards Board (IASB) has published a new standard that will permit eligible subsidiaries to apply the recognition, measurement and presentation requirements of IFRS Accounting Standards but with reduced disclosure requirements. 

The new standard – IFRS 19 Subsidiaries without Public Accountability: Disclosures – is effective from 1 January 2027, with early adoption permitted. In the UK, the adoption of IFRS 19 will be subject to endorsement by the UK Endorsement Board.

IFRS 19 has been published in response to feedback on the challenges of preparing financial statements for subsidiaries. Preparers noted that parent companies reporting under IFRS face a choice between requiring subsidiaries to apply either IFRS or local generally accepted accounting principles (GAAP). 

IFRS allows for uniform accounting between the subsidiary and parent, but that often results in onerous and disproportionate disclosures for the subsidiary. In contrast, applying local GAAP may come with less disclosure requirements but can result in additional records having to be kept, to bridge the recognition and measurement differences with group reporting under IFRS. 

IFRS 19 aims to reduce this burden. Subsidiaries that elect to apply IFRS 19 will follow the same recognition, measurement and presentation requirements as in other IFRS Accounting Standards, but the disclosure requirements of those standards will be replaced with the reduced requirements of IFRS 19.

Same accounting policies

As a result, parent companies and their eligible subsidiaries will be able to use the same accounting policies but with fewer disclosures for the subsidiary, removing the need for two separate accounts to be kept.

Subsidiaries eligible to apply IFRS 19 are those that: 

1. do not have public accountability; and
2. have a parent (intermediate or ultimate) that applies IFRS Accounting Standards in their consolidated financial statements that are available for public use.

An entity is defined as having public accountability if its equity or debt instruments are traded in a public market or it holds assets in a fiduciary capacity; a definition aligned to that in the IFRS for SMEs Accounting Standard.

In the UK, qualifying subsidiaries are already able to benefit from reduced disclosure requirements through the application of FRS 101 Reduced Disclosure Framework. FRS 101 sets out disclosure exemptions for the individual financial statements of qualifying subsidiaries and parent companies that otherwise apply the recognition, measurement and disclosure requirements of UK-adopted IFRS. Any endorsement of IFRS 19 for use in the UK will therefore need to consider the interrelation between the new standard and FRS 101.

Sally Baker, ICAEW’s Head of Corporate Reporting Strategy, welcomes the publication of the new IFRS Accounting Standard. 

“As demonstrated by the wide adoption of FRS 101 in the UK, we believe there are significant benefits to a reduced disclosure regime,” she says.

“The combination of consistency of recognition and measurement with the parent’s IFRS consolidated financial statements and simplified disclosures could lead to significant cost efficiencies for groups. Entities in jurisdictions outside of the UK and many multinational businesses, including those in the UK, are likely to welcome the opportunity to apply IFRS 19.”

The Corporate Reporting Faculty will be monitoring developments regarding the endorsement of IFRS 19 for use in the UK and is ready to contribute its views.