Subsidiaries that are SMEs

Date recorded:

Research results—additional issues (Agenda Paper 31)


The objective of this project is to consider providing disclosure relief for subsidiaries that are SMEs, as defined in the IFRS for SMEs Standard, and that report to a parent, for consolidation purposes, numbers that apply the recognition and measurement requirements of full IFRS Standards.

In this session, the Board discussed how the project can benefit subsidiaries, what the scope of the project would be, and was asked to vote on the staff’s recommendation to continue work on the project before considering whether the scope should be expanded.

How the project can benefit subsidiaries

Assuming that a jurisdiction requires entities that are not publicly accountable to prepare general purpose financial statements, the choice for subsidiaries that are SMEs, would typically be to apply:

  • (a) IFRS Standards (Option 1)
  • (b) the IFRS for SMEs Standard (Option 2)
  • (c) local GAAP (Option 3)

When such subsidiaries choose to apply Option 1, they are required to comply with the full disclosure requirements of IFRS Standards, even though these requirements were developed with users in mind whose needs are different to those of a user of financial statements of an SME.

If such subsidiaries adopt Option 2 or 3, they will need to maintain accounting records applying requirements of both full IFRS Standards and either the IFRS for SMEs Standard or local GAAP. They will incur additional costs because of the need to maintain additional accounting records.

This project considers providing cost relief to such subsidiaries by eliminating the requirement to maintain additional accounting records, but to achieve this in a way that permits the subsidiaries not to have to give all the disclosures required by IFRS Standards.

Scope of the project and staff recommendation

The staff recommended that the project proceeds based on the scope as originally determined when the Board added the project to the research pipeline, i.e. considering only subsidiaries that are SMEs. Once the staff and Board have completed the analysis comparing each Standard within IFRS Standards with the relevant section in the IFRS for SMEs Standard, the Board will then discuss whether the scope can be expanded without significantly affecting the conclusions already reached.

Discussion and voting

The staff briefly introduced the paper and stated their recommendation. The Board was asked for questions and comments before being asked to vote.

Comments, generally, were in favour of the staff’s recommendation, stating that requiring reduced disclosures (while still applying the relevant IFRS recognition and measurement requirements) would allow for less work for preparers and may encourage more widespread use of IFRS Standards (and the IFRS for SMEs) in jurisdictions that previously did not apply them.

Some Board members asked staff whether the suggested approach would result in delays if the scope was expanded after work had been completed. The staff do not believe that this would be the case given the approach taken in the project.

One Board member raised a concern regarding the inclusion of certain transactions (especially those with external parties) in consolidated financial statements without providing the related disclosures.

When asked to vote, all Board members voted in favour of the staff’s recommendation.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.