Cover paper (Agenda Paper 31)

At this meeting, the IASB continued redeliberating the Exposure Draft Subsidiaries without Public Accountability: Disclosures (draft Standard) with the objective of developing an IFRS Accounting Standard (new Standard). In particular, the IASB discussed feedback on the effective date and transition to the new Standard and Due Process.

This paper was not discussed.

Effective date and transition (Agenda Paper 31A)

This agenda paper was for the IASB to discuss the effective date and transition provisions for the new Standard. As part of the transition requirements in the new Standard, the paper also discussed the interaction between the new Standard and the Standard being developed based on the Exposure Draft General Presentation and Disclosures (Primary Financial Statements (PFS) Standard).

Staff analysis

Effective Date

The new Standard will simplify the preparation of eligible subsidiaries’ financial statements by permitting the application of IFRS Accounting Standards with reduced disclosure requirements. As the new Standard does not introduce new requirements, this suggests a shorter period from the date of issuing the new Standard to the effective date could be acceptable.

There were no comments received on the effective date as proposed in the draft Standard. However, some feedback indicates that some jurisdictions might need time to incorporate the new Standard into their regulations. This suggests the normal period of time between issuing the new Standard to the effective date could be appropriate.

The IASB generally allows at least 12-18 months between the issuance of an IFRS Accounting Standard and its effective date, which is a reasonable period for a jurisdiction to adopt the new Standard and consider implications into their regulations. For jurisdictions where there is no, or less, concern on the interaction of the new Standard with local regulations, they will not be disadvantaged if early application of the new Standard is permitted.

It is envisaged that the new Standard will be issued in the first half of 2024, therefore an effective date for periods ending after 31 December 2026 could be proposed.

Transition requirements

An eligible subsidiary electing to apply the new Standard would previously have applied a local GAAP, the IFRS for SMEs Accounting Standard or (full) IFRS Accounting Standards.

An eligible subsidiary electing to apply the new Standard that previously applied a local GAAP or the IFRS for SMEs Accounting Standard would apply IFRS 1 on electing to apply the new Standard for the first time.

An eligible subsidiary electing to apply the new Standard and previously applying IFRS Accounting Standards would not apply the requirements in IAS 8, and is not required to present a third statement of financial position (that is, a second comparative statement of financial position) as at the beginning of the earliest period presented.

Interaction between the new Standard and the PFS Standard

The disclosure requirements proposed in the draft Standard under the IAS 1 subheading are based on IAS 1 and were not updated for the Exposure Draft General Presentation and Disclosures. It is expected that the PFS Standard will be issued before the new Standard is issued. Consequently, the staff think the draft Standard should be updated to be based on the PFS Standard.

Updating the proposed disclosure requirements for the PFS Standard would not involve adding or deleting any disclosure requirements to or from the draft Standard because these disclosure requirements have not been subject to due process. Updating will be restricted to amending the references

As it is expected that the PFS Standard will be issued before the new Standard is issued and given that both these new IFRS Accounting Standards are likely to permit early adoption, a question arises on the interaction between these two new IFRS Accounting Standards. The following scenarios could arise:

• An eligible subsidiary early adopts the PFS Standard but does not early adopt the new Standard. In this scenario the new Standard needs to include disclosure requirements based on the PFS Standard
• An eligible subsidiary early adopts both new IFRS Accounting Standards simultaneously. In this scenario the new Standard needs to include disclosure requirements based on the PFS Standard
• An eligible subsidiary early adopts the new Standard but does not early adopt the PFS Standard. In this scenario the new Standard needs to include disclosure requirements for IAS 1

If the effective dates are the same but an eligible subsidiary wishes to early adopt the new Standard, the staff recommend that the IASB adds an appendix to the new Standard of the disclosure requirements that would be applicable. From the perspective of maintaining the new Standard, when the PFS Standard becomes effective the IASB could withdraw this appendix without affecting the main body of the new Standard.

Staff recommendation

The staff recommended that the IASB:

• Aligns the effective date of the new Standard with the PFS Standard
• Permits earlier application of the new Standard and requires an eligible subsidiary to disclose that fact
• Confirms the proposed requirements for comparative information when an eligible subsidiary elects to apply the new Standard or revokes that election

In addition, the staff recommended that as part of the transition requirements, the IASB:

• Confirms that disclosure requirements issued since the draft Standard was developed remain applicable
• Specifies the applicable disclosure requirements if an eligible subsidiary applies the new Standard early but does not apply the PFS Standard early

IASB discussion

The discussion mainly focused on the question of whether the effective date of the new Standard should be aligned with the effective date of the PFS Standard, both from a point of principle perspective and from a practical perspective. One IASB member raised a concern about the challenge users may face if prepares adopt the new Standard in one year and then adopt the PFS the subsequent year.  That IASB member recommended going further than aligning the effective date of the two standards by mandating that the preparers could only early adopt the new Standard if they also early adopted PFS. Other members noted that the new Standard was for subsidiaries with no public accountability and there should therefore be limited user concern about this issue in practice.  

During the discussion it was noted that the objective of the new Standard was to reduce costs for preparers and that it would therefore be best to allow adoption as early as possible.  One IASB member suggested that the effective date should be 1 January 2026, but the consensus was that 2027 was preferable, especially as early adoption was to be allowed. 

It was noted that the PFS and the new Standard were developed independently and for different purposes and most IASB members preferred not to link them together.

IASB decision

The IASB voted on the following items separately:

• Align the effective date of the new Standard with the PFS Standard—5 out of 14 IASB members agreed
• Set the effective date as 2027 with early application permitted—12 out of 14 IASB members agreed
• Set the effective date as 2026 with early application permitted—2 out of 14 IASB members agreed

The rest of the recommended items were voted on collectively:

• Permit earlier application of the new Standard and require an eligible subsidiary to disclose that fact
• Confirm the proposed requirements for comparative information when an eligible subsidiary elects to apply the new Standard or revokes that election
• Confirm that disclosure requirements issued since the draft Standard was developed remain applicable
• Specify the applicable disclosure requirements if an eligible subsidiary applies the new Standard early but does not apply the PFS Standard early

All IASB members agreed with these recommendations.

Due process (Agenda Paper 31B)

This agenda paper explained the steps in the IFRS Foundation Due Process Handbook that the IASB has taken in developing the new Standard. This paper also asked the IASB’s permission to begin the process for balloting the new Standard and asked if any IASB member plans to dissent from the proposals in the new Standard.

IASB decision

All 14 IASB members confirmed they were satisfied the IASB has complied with the applicable due process requirements and has undertaken sufficient consultation and analysis to begin the process for balloting the Standard.

No IASB member indicated an intent to dissent from issuing the Standard.

The IASB decided re-exposure of the proposals in the ED as revised by its tentative decisions is not required. All 14 IASB members agreed with this decision.