IFRS 19: Simplification of disclosure for financial statements of subsidiaries

published on 13 November 2024 | reading time approx. 4 minutes

The IASB has published the new accounting standard IFRS 19, "Subsidiaries without Public Accountability: Disclosures," which will introduce reductions to disclosure requirements for the financial statements of subsidiaries. IFRS 19 will simplify reporting systems and processes for companies, lowering the costs of preparing the subsidiaries’ financial statements while maintaining a certain level of quality and usefulness of the information for stakeholders.

On May 9, 2024, the International Accounting Standards Board (IASB) published IFRS 19 which comes into effect on January 1, 2027. The primary objective of the new standard is to optimize the reporting systems for subsidiaries by introducing a simplified disclosure framework, in order to reduce costs for companies, while maintaining quality of information for all users of financial statements.

Scope and purpose of IFRS 19

IFRS 19 complements the other IFRS standards and provides that a subsidiary may apply the simplified disclosure requirements if the following two conditions are met:

1The subsidiary does not have "public accountability”: this means that IFRS 19 does not apply to companies whose debt or equity instruments are traded on a public market, or which are in the process of issuing such instruments for trading in a public market, or which hold assets in a fiduciary capacity.
The subsidiary is part of a group that prepares consolidated financial statements in accordance with IFRS: it is necessary that at least one holding company within the control chain prepares a consolidated financial statement according to IFRS, even if the immediate parent company or ultimate parent company uses local accounting principles for consolidation.

Through this increased flexibility, the standard aims to reduce the duplication of accounting requirements for subsidiaries in relation to financial statement disclosures, especially in groups where a consolidated financial statement is already prepared under IFRS.

Application and disclosure obligations

IFRS 19 focuses solely on financial statement disclosures and therefore does not include:

Specific requirements for recognition, measurement, and presentation of financial statement information. These requirements, outlined in other IFRS standards, continue to apply.
Guidance on the application of disclosure requirements. In this regard, companies should refer to the guidelines in other IFRS standards.

When a subsidiary falls under the scope of IFRS 19 and chooses to adopt the standard, it must still comply with other IFRS standards for recognition, measurement, and presentation of accounting events. IFRS 19 permits simplified disclosures, which, although reduced compared to full IFRS standards, remain sufficient to understand the financial position, economic results, and cash flows of the subsidiary.

Therefore, subsidiaries applying IFRS 19 must always assess whether additional information is required when the disclosures provided under IFRS 19 are not sufficient to allow users of the financial statements to understand the subsidiary's financial position, economic results, and cash flows.

Moreover, a company that decides to apply this accounting standard must declare its decision in the financial statement.

Principles for identifying useful information

The new IFRS 19 standard reduces disclosure requirements, similarly to the IFRS for SMEs Accounting Standard. Below are some criteria to help identify relevant information that should be included in the financial statements of companies choosing to apply IFRS 19:

Liquidity and solvency: Information on the ability to generate cash flows and continue as a going concern.
Short-term cash flows, obligations, commitments, and contingencies: Details on the company's ability to meet its obligations.
Measurement uncertainties: Information about how amounts in the financial statements are measured, including inputs used in those calculations.
Disaggregation of amounts: Information about separation of amounts (presented in the financial statements) into component parts.
Accounting policy choices: Information on the accounting principles adopted, particularly where multiple options are permitted.

Benefits for companies and jurisdictions

IFRS 19 offers companies the opportunity to benefit from cost savings and simplified disclosures without compromising the usefulness and quality of the financial information provided to stakeholders. These savings will not only benefit the subsidiaries but also the groups to which they belong, and ultimately the shareholders.

Entities applying IFRS 19 will benefit from a reduction in disclosure obligations, and hence reduced time, cost, and effort needed to prepare and audit these financial statements.

The introduction of IFRS 19 is also an opportunity for jurisdictions that endorse or enable its application. By reducing reporting burdens and simplifying management processes, these jurisdictions become more attractive to investors and businesses. Reduced compliance requirements offer significant benefits for companies, allowing them to focus on growth while minimizing disclosure obligations, without compromising the quality of the information provided.