Cover paper (Agenda Paper 32)

IFRS 19 Subsidiaries without Public Accountability: Disclosures is expected to be issued in May 2024. IFRS 19 was developed based on IFRS Accounting Standards issued as at 28 February 2021. The IASB discussed incorporating new or amended disclosure requirements in IFRS Accounting Standards issued after that date and agreed that the catch-up exposure draft (catch-up ED) would propose disclosure requirements based on these new or amended requirements.

In July 2023, the IASB confirmed that the catch-up ED included disclosure requirements from the following projects:

• Lack of exchangeability (amendments to IAS 21)
• International tax reform—pillar two model rules (amendments to IAS 12)
• Supplier finance arrangements (amendments to IAS 7 and IFRS 7)
• Non-current liabilities with covenants (amendments to IAS 1)
• Amendments to the classification and measurement of financial instruments (amendments to IFRS 9 and IFRS 7)
• Primary financial statements (IFRS 18 Presentation and Disclosure in Financial Statements)
• Rate-regulated activities
• annual improvements to IFRS

Among the projects listed above, the IASB has discussed disclosure requirements on lack of exchangeability, international tax reform—pillar two model rules, supplier finance arrangements, amendments to the classification and measurement of financial Instruments and annual improvements to IFRS.

At this month’s meeting the rate-regulated activities project team brought an agenda paper to the IASB to discuss and consider proposed reduce disclosure requirements for rate-regulated activities (see Agenda Paper 9B). The discussions for the proposed reduced disclosure requirements for the amendments to IAS 1 and IFRS 18 are covered in Agenda Paper 32A.

Disclosure requirements from the new PFS Standard (Agenda Paper 32A)

The IASB’s agreed approach to the maintenance of IFRS 19 requires that potential changes to the standard are reviewed on two levels. Firstly, in detail against the principles for reducing disclosures outlined in paragraph BC34 of the exposure draft (ED) Subsidiaries without Public Accountability: Disclosures. Secondly, at a high level, considering whether newly added or amended disclosure requirements would be proportional and align with the goal of allowing reduced disclosures while still meeting the needs of users of the financial statements of eligible subsidiaries.

Areas of judgement

General considerations relating to assessing disclosure requirements from IFRS 18

The staff recommends that the catch-up ED should not include proposals relating to disclosure requirements carried forward from IAS 1 to IFRS 18 without amendment, which the IASB has already considered in developing IFRS 19. However, under IFRS 18, the new or amended disclosure requirements relating to aggregation and disaggregation are likely to help eligible subsidiaries provide information to meet the needs of users of their financial statements and meet the principles for reducing disclosures. The table in the appendix to the agenda paper sets out the draft disclosure requirements from IFRS 18 that will be included in IFRS 19 when issued, including both disclosure requirements carried forward from IAS 1 to IFRS 18 and new and amended disclosure requirements from IFRS 18. The table provides recommendations for retaining, referencing, or completing consultation on each draft disclosure requirement.

Management-defined performance measures

IFRS 18 will include a requirement to identify management-defined performance measures and that related disclosure requirements will be necessary if an entity uses such measures. In the context of entities applying IFRS 19, the level of interest to users of eligible subsidiaries' financial statements is likely to be affected by the type of management-defined performance measures used. The staff thinks that eligible subsidiaries are less likely to make use of management-defined performance measures than entities that are not eligible to apply IFRS 19. Therefore, the staff recommends that the catch-up ED could propose replacing all of the disclosure requirements relating to management-defined performance measures in IFRS 19 with a requirement for eligible subsidiaries that use management-defined performance measures, as defined in IFRS 18, to provide the disclosures set out in IFRS 18.

Main business activities

According to IFRS 18, entities are required to assess whether they invest in assets or provide financing to customers as a main business activity. If an eligible subsidiary engages in these activities, it will affect the structure of its statement of profit or loss. Therefore, the staff recommends retaining the disclosure requirements related to the main business activity assessment in IFRS 19. These disclosures would provide important information to users of the financial statements of eligible subsidiaries involved in asset investment or customer financing activities. Additionally, IFRS 19 will include credit risk disclosures for entities engaged in customer financing activities, referring to IFRS 18 for the description of main business activities.

Requirements that relate to both presentation and disclosure

The staff recommends that, in some cases, IFRS 19 refers to the disclosure requirements in IFRS 18 instead of reproducing them in IFRS 19. This includes requirements that relate to both presentation and disclosure. While some of these requirements may not strictly align with the principles for reducing disclosure requirements in IFRS 19, the staff believes that attempting to separate them into presentation and disclosure parts would not be feasible. Therefore, the staff suggests that IFRS 19 refers to these requirements in their entirety rather than selecting specific parts to include.

Holistic assessment

The aim is to achieve a reasonable balance between meeting user needs and being manageable for preparers. Following the staff recommendation would result in the catch-up ED proposing the retention of most of the disclosure requirements from IFRS 18 in IFRS 19, either by keeping them within IFRS 19 itself or by referencing the requirements in IFRS 18. Any concerns regarding proportionality can be addressed through feedback on the catch-up ED.

Staff recommendation

The staff recommended that the IASB propose, in the catch-up ED, the retention of the disclosure requirements from IFRS 18 that will be in IFRS 19 when issued, subject to:

• replacing the requirements relating to management-defined performance measures with a reference to those requirements in IFRS 18, to be located in the paragraph of IFRS 19 that lists the requirements in IFRS 18 that remain applicable to an eligible subsidiary; and
• removing the disclosure objective from a disclosure requirement relating to non-current liabilities.

The staff also recommended that the IASB does not include in the catch-up ED any proposals relating to disclosure requirements carried forward from IAS 1 to IFRS 18 without amendment (other than minor editorial changes), which the IASB has already considered during the development of IFRS 19.

IASB discussion

Some IASB members discussed the necessity for eligible subsidiaries to disclose the income tax effect and effect on non-controlling interests for each item disclosed in the reconciliation of management-defined performance measures. Additionally, based on feedback received during the consideration of IFRS 18 content, it was believed that disclosing the nature of expenses included in each function line item could help users of financial statements gain a better understanding of the cash flow statement. The IASB will need to consider the cost and benefits of retaining this requirement for eligible subsidiaries. Some IASB members pointed out that as most subsidiaries already prepare such information for group reporting, reducing this requirement may not result in cost savings for the subsidiaries. However, other IASB members noted that there may be some subsidiaries outside the scope of group reporting based on materiality considerations.

IASB members also debated whether to make a reference to IFRS 18 instead of incorporating the context of IFRS 18 into IFRS 19. Most members agreed that referencing IFRS 18 is an efficient way to expand IFRS 19. This approach acknowledges that most eligible subsidiaries may not need to disclose certain information required by IFRS 18. If they do disclose such information, they can refer to the requirements in IFRS 18.

IASB decision

All IASB members voted in favour of the staff recommendation.