Disclosure Initiative ⎯ Subsidiaries without Public Accountability: Disclosures
Cover paper (Agenda Paper 31)
The Exposure Draft ED/2021/7 Subsidiaries without Public Accountability: Disclosures (published in July 2021) sets out the IASB’s proposal for a new IFRS Accounting Standard that would permit an eligible subsidiary to apply reduced disclosure requirements when applying IFRS Accounting Standards.
At its April 2022 meeting, the IASB discussed feedback from comment letters and outreach events on the ED. The purpose of this meeting is for the IASB to discuss feedback on the scope of the draft standard.
Proposed scope of the draft Standard (Agenda Paper 31A)
The purpose of this paper was to ask the IASB to consider feedback on the scope of the draft standard and discuss whether the proposed scope of the draft standard is appropriate for the purposes of finalising the draft standard.
Stakeholders expressed mixed views on the proposed scope of the draft standard. Many respondents suggested widening the scope to allow more entities to apply the proposals. However, they had different views on how the scope should be widened. Some respondents agreed with the proposed scope but suggested the IASB considers widening the scope at a later stage, for example, after the draft Standard has been implemented.
Respondents who suggested widening the scope expressed a variety of views on how the scope should be widened. Some suggested to widen the scope of the draft Standard to:
- All entities without public accountability (all entities that are SMEs)
- Joint ventures and associates without public accountability.
- Subsidiaries without public accountability regardless of the GAAP applied in the parent’s consolidated financial statements
- The ultimate parent’s separate financial statements
- Some financial institutions, including insurance entities and banks
Staff recommendation
The staff recommended that, if the IASB decides to proceed to finalise the draft Standard, it should finalise the draft Standard with the scope as proposed in the ED and commit to review the scope of the draft Standard as part of the post-implementation review of the standard.
In Agenda Paper 30B (part of the session on IFRS for SMEs), the staff recommend that the IASB should clarify the definition of public accountability in the IFRS for SMEs Accounting Standard. Agenda Paper 30B also includes the following recommendations if the IASB decides to proceed to finalise the draft Standard:
- Clarifying amendments to the draft standard to assist understanding of the definition of public accountability and avoid specifying how often the entities listed in the draft standard hold assets in a fiduciary capacity for a broad group of outsiders as one of their primary businesses
- Clarifying amendments to the draft standard that an intermediate parent assesses its eligibility to use the draft standard in its separate financial statements on the basis of its own status without considering whether other group entities have, or the group as a whole has, public accountability
- Making the guidance on public accountability in Module 1 Small and Medium-sized Entities (the educational material on Section 1 of the IFRS for SMEs Accounting Standard) available on the IFRS Foundation website as guidance supporting the draft standard
IASB discussion
IASB members expressed support for the staff recommendation not to widen the scope at this point. While many respondents suggested to widen the scope, there was no clear consensus as to how to widen it. Exploring the different options for widening the scope would delay the project significantly. IASB members were generally supportive of widening the scope later on, for example at the PIR, but one IASB member objected to committing a review of the scope in the PIR. In her view, this would set a precedence for other new standards to consider at finalisation which issues would be discussed in the PIR.
One IASB member suggested to explain in the Basis for Conclusions to the standard why the scope has been determined as drafted and why it is the IASB’s remit to determine the scope. This is to discourage jurisdictions from amending the scope and therefore hampering comparability between entities applying the standard.
IASB decision
9 of 10 IASB members supported the staff recommendation, provided that the IASB does not commit to reviewing the scope in the PIR, but rather reconsider the scope if there is an opportunity to do so.