SMEs that are subsidiaries

Date recorded:

Project update (Agenda Paper 31)


In 2016, the Board included in its research pipeline a project on SMEs that are subsidiaries.  That research project has now become active.  This paper sets out the objective of the project and provides some background information.

Staff analysis

In response to the Request for Views: 2015 Agenda Consultation some respondents suggested that subsidiaries that are SMEs should be permitted to apply IFRS Standards with reduced disclosures. The IFRS for SMEs Standard is not always attractive as subsidiaries must report IFRS compliant figures to their parent, for consolidation purposes.

The research for the project will involve:

  • (a) Investigating how much tailoring of the disclosure requirements of the IFRS for SMEs Standard would be needed to ensure they support the recognition and measurement requirements of IFRS Standards. Among other things, this investigation will consider:
    • i. Whether it is possible to combine the two existing regimes (IFRS Standards and the IFRS for SMEs Standard)
    • ii. When and how the resulting requirements would be updated when there is an update to the recognition and measurement requirements in IFRS Standards or to the disclosure requirements in the IFRS for SMEs Standard
  • (b) Outreach to establish whether preparers would have sufficient appetite for the package to make it worthwhile to pursue developing it
  • (c) Outreach to establish the extent to which national standard-setters:
    • (i) Have developed their own standard(s) permitting subsidiaries/entities to provide reduced disclosures
    • (ii) Would permit the application in their jurisdictions of a Standard permitting subsidiaries to apply the recognition and measurement requirements in IFRS Standards with the disclosure requirements in the IFRS for SMEs

The paper summarises the work that the Australian Accounting Standards Board (AASB) are doing on a reduced disclosure framework for Tier 2 entities whilst retaining the recognition and measurement criteria for IFRS. Tier 2 entities include for-profit private sector entities that do not have public accountability.

The staff intend to discuss the project at the next meetings of the Global Preparers Forum, The International Forum of Accounting Standard Setters and the Accounting Standards Advisory Forum.

Staff recommendations

No staff recommendations were included in the paper as the Board is not being asked to make any decisions at this meeting.

Board Discussion

One Board member asked for clarification on how the work of the Australian standard-setter can be leveraged when thinking about a disclosure standard for non-public interest entities. Staff confirmed that they were undertaking similar research and would be able to confirm their approach by reference to the conclusions made in Australia.

Several Board members agreed with the direction of the project to understand whether national standard-setters would permit use of a more limited disclosure standard and to discover if the project is feasible. However, concerns were raised about whether there should be earlier outreach to users and preparers to understand whether there is an appetite for this.

Some Board members showed support so long as there is no linking between the new Standard and the IFRS for SMEs Standard that would require alignment in the future. The IFRS for SMEs Standard should only be used as a base for the initial proposal.

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