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Disclosure Initiative — Subsidiaries that are SMEs

Date recorded:

Presentation requirements (Agenda Paper 31)

In January 2020, the Board agreed to move the Subsidiaries that are SMEs project from the research programme to the standard-setting programme. In April 2020, the Board agreed to the proposed plan for the project for the remainder of 2020.

The objective of the project is to develop an IFRS Standard (reduced disclosure IFRS Standard) that will permit subsidiaries that meet the definition of an SME to apply IFRS Standards but with reduced disclosure requirements.

At this meeting, the Board were asked whether they agree with the staff’s proposed recommendations on the following points:

  • Compliance Statement

    The staff recommended that a subsidiary that applies the reduced disclosure IFRS Standard should be required to disclose that it has applied the reduced disclosure IFRS Standard. The staff also recommended that this disclosure is required to be located with the statement required by IAS 1:16 so that all subsidiaries include the information in the same place and someone using the financial statements of several subsidiaries can readily identify whether the reduced disclosure IFRS Standard has been applied.

    Discussion and voting

    A concern was raised in relation to this requirement, specifically whether the disclosure may be construed as qualifying the statement of compliance. Despite the concern raised, the Board supported the staff recommendation. This support was due to the arguments raised in the paper; specifically, without these disclosures the users of the financial statement will not be able to clearly distinguish entities that applies full IFRS and entities that apply the reduced disclosure framework.

    When asked to vote, 12 of the 13 Board members voted in favour of the staff’s recommendation.

  • IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

    The staff recommended that all the disclosure requirements of IAS 8 remain applicable for subsidiaries applying the reduced disclosure IFRS Standard and that IAS 8 would apply in full. Subsidiaries would not be exempt from any paragraphs of IAS 8.

    Discussion and voting

    Board members asked whether the contents of IAS 8 will appear within the text of the standard or as a cross-reference and  whether the application of the standard will mean an accounting policy choice.

    The staff made it clear that the intention of the standard is to make it simpler for IAS 8 to apply by clearly indicating which disclosure requirements will apply and list in the appendix those that does not apply for entities who will adopt the Standard.

    When asked to vote, all 13 Board members voted in favour of the staff’s recommendation.

  • Disclosure requirements in transition provisions of new IFRS Standards

    The staff recommended that disclosure requirements about transition provisions that are included in an IFRS Standard, subject to any modification the Board considers appropriate, should remain applicable to subsidiaries that apply the reduced disclosure IFRS Standard and that they are included in the new or amended IFRS Standard rather than in the reduced disclosure IFRS Standard.

    Discussion and voting

    The staff highlighted that the recommendation arose from the fact that not all new Standards have disclosure requirements specific to transitional provisions. The objective of the recommendation is to require a subsidiary that is an SME and that first applies a new IFRS Standard or amended Standard to comply with the transitional provisions.

    When asked to vote, all 13 Board members voted in favour of the staff’s recommendation.

  • Combined financial statements

    The staff recommended that paragraph 9.30 of the IFRS for SMEs Standard is not included in the reduced disclosure IFRS Standard.

    Discussion and voting

    Opposition was raised in relation to omitting the requirements of paragraph 9.30 as these have proved to be sensible and relevant disclosures required in producing combined financial statements. It was also suggested that instead of omitting these disclosures, the Board should consider whether amendments are to be made to other IFRS Standards to introduce these requirements from IFRS for SMEs Standards.

    Despite the opposition, the Board supported the staff recommendation. This is mainly because when an entity produces combined financial statements they will need to prepare disclosures that will follow something similar to the Section 9 of the IFRS for SMEs Standard.

    When asked to vote, 10 of the 13 Board members voted in favour of the staff’s recommendation.

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