Relationship of the new IFRS Accounting Standard with the IFRS for SMEs Accounting Standard (Agenda Paper 31)

Background

At its June 2022 meeting, the IASB agreed on a project plan for redeliberating the Exposure Draft Subsidiaries without Public Accountability: Disclosures (ED) towards developing an IFRS Accounting Standard (Standard).

At the March 2023 meeting, the IASB continued its redeliberations of the relationship of the new IFRS Accounting Standard with the IFRS for SMEs Accounting Standard.

Objective

• Discuss the feedback on the interaction between the disclosure requirements proposed in the ED and the IFRS for SMEs
• Clarify the interaction between the forthcoming IFRS Accounting Standard (reduced disclosure Standard) and the IFRS for SMEs

Staff analysis

The staff summarised the below points with regard to the clarification of the ongoing relationship between the reduced disclosure Standard and the IFRS for SMEs:

• Why the IASB added this project to its work plan
• Developing the ED approach by using disclosure requirements in the IFRS for SMEs—tailored to reflect the recognition and measurement requirements of IFRS Accounting Standards
• The principles applied for reducing disclosure requirements—same principles the IASB used in assessing users’ needs when it developed the IFRS for SMEs
• Responding to the feedback received on the ED, including: start with IFRS Accounting Standards; cost-benefit considerations; interaction between the reduced disclosure Standard and the IFRS for SMEs.

Explain in the Basis for Conclusions:

• In developing the ED, the IASB started with the disclosure requirements in the IFRS for SMEs
• In the future the reduced disclosure Standard will be updated as new and amended IFRS Accounting Standards are developed; the IFRS for SMEs will continue to be updated periodically
• Therefore, there will be separate consultations for updating the reduced disclosure Standard and the IFRS for SMEs
• Costs and benefits will be assessed separately for subsidiaries and SMEs that are not subsidiaries
• The reduced disclosure Standard and the IFRS for SMEs may have different disclosure requirements because of recognition and measurement differences, and assessment of costs and benefits

Staff recommendation

The staff recommended that the IASB assess separately the costs and benefits for subsidiaries applying the reduced disclosure Standard and the costs and benefits for SMEs applying the IFRS for SMEs.

IASB discussion

There was some discussion of the extent to which the disclosure requirements of the IFRS for SMEs could be leveraged when other IFRS Accounting Standards are updated. It was noted that this was likely to be most fruitful when the recognition and measurement requirements are equivalent. It was also pointed out that work on similar projects in other jurisdictions could also be leveraged, for example, from projects developing reduced disclosure requirements under local GAAP.

One member questioned the cost-benefit rationale for differences in disclosure requirements between the new Standard and the IFRS for SMEs in cases where the recognition and measurement requirements are equivalent. The ensuing discussion clarified that the benefit to SMEs and SMEs that are subsidiaries is likely to be similar as they have similar users of their financial statements. However, the cost is likely to be greater for SMEs that are not subsidiaries because they would be unable to leverage any group reporting disclosures. It was noted that SMEs that are subsidiaries are therefore less likely to adopt the IFRS for SMEs.

The staff agreed that they will conduct a scope review to reconsider if the subsidiaries should not be allowed to apply the IFRS for SMEs.

IASB decision

All IASB members agreed with the staff recommendation.