Approach to maintenance (Agenda Paper 31)

The purpose of this paper was to summarise the IASB’s approach to maintenance of the forthcoming IFRS Accounting Standard Subsidiaries without Public Accountability: Disclosures (Subsidiaries Standard). The paper did not ask the IASB to make any decisions. It was meant to be read in conjunction with Agenda Paper 18A of the Business Combinations–Disclosures, Goodwill and Impairment project which considers disclosures to be included in the forthcoming amendments to IFRS 3 and IAS 36 and will propose amendments to the Subsidiaries Standard.

Staff summary of how the agreed approach to maintenance is operationalised

Potential amendments to the disclosure requirements in the Subsidiaries Standard will be considered when they arise as a result of changes to disclosure requirements in a proposed new or amended IFRS Accounting Standard. They will be considered individually based on the principles for reducing disclosures, and holistically to ensure that the effect of making the amendments would be proportionate and would preserve the goal of maintaining the usefulness of financial statements of eligible subsidiaries with reduced disclosure requirements.

The staff asked the IASB members whether they have any questions or comments about the summary.

IASB discussion

IASB members agreed with the staff summary but there was otherwise no significant discussion.

Interaction with the IASB’s project Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures (Agenda Paper 18A)

In this paper, the staff set out their analysis and recommendations regarding whether subsidiaries without public accountability should be required to disclose the information that would be required by the tentative decisions made by the IASB during this project.

Based on their analysis, the staff recommended that eligible subsidiaries should be required to disclose:

• The strategic rationale for undertaking a business combination
• Whether the discount rate used to calculate value in use is pre- or post-tax

The staff also recommended that eligible subsidiaries should not be required to disclose any of the other information that would be required by the tentative decisions made by the IASB during this project.

IASB discussion

Strategic rationale for undertaking a business combination

IFRS 3:B64(d) requires an entity to disclose the primary reasons for a business combination. In September 2022, the IASB tentatively decided to propose replacing this requirement with a requirement to disclose the ‘strategic rationale for undertaking the business combination’.

The Subsidiaries ED did not propose to include a requirement for an eligible subsidiary to disclose the primary reason for a business combination.

Staff recommended that the IASB propose requiring an eligible subsidiary to disclose the strategic rationale for undertaking a business combination.

One IASB member raised a question on whether an eligible subsidiary can leverage the strategic rationale of their group entity or/and whether they are allowed to cross-reference such information in the group financial statements. Other IASB members and staff pointed out that the Subsidiaries Standard prohibits cross-referencing group accounts. Some IASB members expressed the view that where a subsidiary’s strategic rationale is to follow the group strategy, it should be clearly stated.

Contribution of the acquired business

IFRS 3:B64(q) and its potential amendment require an entity to disclose, to the extent practicable, information about the contribution of the acquired business.

On balance, the staff considered that the costs of requiring an eligible subsidiary to disclose information about the contribution of an acquired business outweigh the benefits. Therefore, the staff recommended that the IASB does not propose requiring eligible subsidiaries to disclose information about the contribution of the acquired business (as amended by the IASB’s tentative decisions in the Business Combinations—Disclosures, Goodwill and Impairment).

Most IASB members believed that eligible subsidiaries would need to provide such information for group reporting purposes such that incremental costs should be limited. 

Various other views were expressed, including that;

• Segregating the required data would be more costly once the acquired business had been integrated into an existing business
• Costs would increase in cases where the year-end of the eligible subsidiary differed to that of its parent group
• Debt providers would likely have similar information requirements at both consolidated and subsidiary levels

IASB decision

For the following topics, all IASB members agreed with the staff recommendation:

• Disclosure objectives
• Strategic rationale for undertaking a business combination
• Information about the subsequent performance of a business combination
• Liabilities arising from financing activities and defined benefit pension liabilities
• Segments to which goodwill is allocated
• Discount rate used for cash flow projections

Contribution of the acquired business

10 out of 14 IASB members agreed to propose amending the new Standard to require an eligible subsidiary to disclose information about the contribution of the acquired business.