1. Executive Summary

IFRS 19 “Subsidiaries without Public Accountability: Disclosures” is a new, voluntary International Financial Reporting Standard (IFRS Accounting Standard) issued in May 2024 by the International Accounting Standards Board (IASB). Its primary objective is to simplify financial reporting and reduce costs for eligible subsidiaries by allowing them to apply IFRS Accounting Standards for recognition, measurement, and presentation, but with reduced disclosure requirements.

The standard aims to address the challenges faced by subsidiaries that currently maintain dual accounting records (e.g., local GAAP for individual statements and full IFRS for group consolidation) or find full IFRS disclosure requirements disproportionate to the needs of their users. By enabling the use of a unified “global financial reporting language” (IFRS) across a group, IFRS 19 is expected to lead to significant cost savings, increased efficiency (especially for groups with shared service centers), and improved quality of reporting.

IFRS 19 is effective from January 1, 2027, with early application permitted. Its successful implementation and the realization of its full benefits are contingent on its endorsement and adoption by jurisdictions worldwide, particularly within the European Union, where an endorsement process is currently underway.

2. Background and Rationale for IFRS 19

The IASB initiated the IFRS 19 project in response to widespread feedback from preparers during its 2015 Agenda Consultation. These stakeholders highlighted significant challenges for subsidiaries preparing financial statements for both individual and group consolidation purposes:

• Dual Reporting Systems: Many subsidiaries either apply local GAAP or the IFRS for SMEs Accounting Standard for their individual financial statements, which often have recognition and measurement differences with the full IFRS Accounting Standards used for group consolidation. This necessitates maintaining “additional accounting records” or converting amounts, leading to “unnecessary costs.”
• Disproportionate Disclosures: Subsidiaries that already applied full IFRS Accounting Standards for their individual financial statements found the extensive disclosure requirements “often disproportionate to the needs of their users.”

IFRS 19 offers a solution by allowing eligible subsidiaries to “use IFRS Accounting Standards both for consolidation purposes with their parent and for their own financial statements with reduced disclosures.” . This “innovative standard and approach” aims to “reduce costs in the ecosystem for subsidiaries preparing their final statements and for auditors and users of the financial statements by targeting the most important disclosures.”

3. Scope and Eligibility for IFRS 19

3.1 Definition of an Eligible Subsidiary

An entity is eligible to apply IFRS 19 if it is:

• “an entity that does not have public accountability”
• “and has a parent that prepares consolidated financial statements that comply with IFRS Accounting Standards”

3.2 Definition of Public Accountability

An entity does not have public accountability if:

• “its equity or debt instruments are not traded in a public market”
• “and it does not hold assets in a fiduciary capacity”

Examples of entities often holding assets in a fiduciary capacity include “banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks. The IASB clarified that whether an entity holds assets in a fiduciary capacity should be “assessed by the entity” based on “legal and regulatory requirements in a jurisdiction.”.

3.3 Voluntary Application and Scope Limitations

• Voluntary Standard: IFRS 19 is “permitted but not required” and “voluntary.” Entities must “assess their own specific costs and benefits when deciding whether to apply IFRS 19.”
• Disclosure-Only Standard: IFRS 19 “is a disclosure-only Standard, and it did not change recognition, measurement or presentation requirements of other IFRS Accounting Standards.”
• Review of Scope: The IASB decided against expanding the scope of IFRS 19 at this initial stage, choosing instead to “review at a later date whether to widen the scope,” especially after initial implementation.

4. Key Principles and Development of Disclosure Requirements

4.1 Principles for Reduced Disclosures

The IASB developed the reduced disclosure requirements in IFRS 19 by applying the “same principles” it used for the IFRS for SMEs Accounting Standard. This approach leveraged previous work, as eligible subsidiaries are considered a “subset of SMEs.”. The six guiding principles are:

• Short-term cash flows, obligations, commitments, and contingencies: Users are “particularly interested” in this information.
• Liquidity and solvency: Information about the company’s ability to meet obligations is “particularly interested.”.
• Measurement uncertainties: Information on how amounts are measured, including “significant judgements and estimates,” is “important.”.
• Accounting policy choices: Information about choices made is “important.”
• Disaggregation of amounts: Separation into component parts is “important for an understanding.”
• Relevance to public capital markets: Some disclosures in full IFRS are “more relevant to investment decisions in public capital markets than to the transactions and other events and conditions encountered by typical eligible subsidiaries.”

4.2 Exclusion of Disclosure Objectives

The IASB decided not to include disclosure objectives in IFRS 19. This is because their inclusion “might result in the perception that an entity is required to provide the same disclosures it would otherwise have provided had it not applied IFRS 19,” which would be “contrary to the project objective.”

5. Expected Benefits of IFRS 19

The adoption of IFRS 19 is anticipated to deliver substantial benefits for companies, groups, and jurisdictions:

5.1 Benefits for Companies and Groups

• Simplification and Cost Reduction: The core benefit is the “simplification of the reporting process reducing costs” by eliminating “unnecessary disclosure requirements” . A field test showed a “64% reduction” in applicable disclosure requirements and an average “14% reduction in the length of the notes” to financial statements.
• Elimination of Dual Accounting Records: This is a major saving, allowing subsidiaries to “use group accounting policies and should eliminate the need for dual accounting records.”. Case studies confirm this, with companies expecting to “eliminate the need to maintain reconciliation tables and to track reconciling items” and “saving costs related to maintaining dual accounting records.”
• Improved Knowledge and Application of IFRS: “A global financial reporting language would mean that accounting staff would only need to be trained on one set of accounting standards (IFRS), which would reduce the risk of errors.” Users anticipated “better quality of reporting because of the improved knowledge of the requirements in IFRS Accounting Standards.”
• Enhanced Efficiency in Shared Service Centers: IFRS 19 would “allow greater use of automation and standardised templates,” accelerating reporting timelines and enhancing the “scalability and effectiveness of shared service centres.”. This also “eliminate[s] the need for expertise in local GAAP” within these centers.
• Streamlined Auditing Process: “The application of IFRS 19 could bring benefits in auditing processes by increasing efficiency and reducing audit costs.” Auditors would “only need to audit one set of financial statements per entity in contrast to two sets of financial statements as currently done.”
• Corporate Governance Benefits: “The same transactions would be accounted in a consistent way.”

5.2 Benefits for Jurisdictions

• Attracting Inward Investment: Enabling IFRS 19 will help make a jurisdiction “an appealing place in the world to start, grow and invest in a business” by “reducing costs for global companies, permitting a global financial language to be applied throughout their group.”
• Reduced Need for Local GAAP Expertise: This lowers “associated training and education costs in the reporting ecosystem and improving workforce mobility.”
• Support from National Standard Setters: Countries like the UK (with FRS 101), New Zealand (NZ IFRS RDR), and Mexico have implemented similar reduced disclosure frameworks and “greatly support the project.” Poland also notes a “large group of potentially eligible subsidiaries” that could benefit.

6. Challenges and Considerations for Application

6.1 Transition Costs

• Varying Costs: Transition costs “will differ from company to company” and depend on their “starting points.” Subsidiaries already reporting under full IFRS will have less significant costs than those transitioning from local GAAP or IFRS for SMEs, who will face costs related to “changing systems and processes.”
• Expected to be Outweighed: Generally, “the benefits of applying IFRS 19 would outweigh the costs” in the long term.

6.2 Application Challenges

• Scalability for Benefits: “Without widespread application, the cost efficiencies could be significantly diminished.”
• User Expectations vs. Reduced Disclosures: Reduced disclosure requirements “might also not reach the expectations of the financial statements’ users, and additional reporting could still be required.” IFRS 19, like other IFRS Accounting Standards, requires additional disclosures “if required to meet users’ information needs.”
• Auditor “Checklist Approach”: Concerns exist that auditors might continue to use a “checklist approach” to identify what is no longer required, potentially leading to “discussion with auditors”. Constructive dialogue is needed to focus on “most meaningful disclosures.”
• Local Reporting Requirements Disconnect: Challenges include ensuring ERP systems accommodate both IFRS 19 and “other local reporting requirements (e.g. reporting for tax purposes).” Local regulators might “require entities to report additional information.”
• Defining Public Accountability in the EU: The term “public accountability” is defined differently across jurisdictions. In the EU, “public interest entity” (as per the statutory audit directive) would likely be used, which includes entities with “transferrable securities… listed in EU regulated markets, credit institutions, insurance undertakings,” and those designated by Member States.

7. Maintenance of IFRS 19

• Ongoing Updates: IFRS 19 will be “updated by issuing consequential amendments when new or amended Standards are issued.”. This ensures it remains current with other IFRS Accounting Standards.
• “Catch-up” Exposure Draft: A specific “catch-up Exposure Draft” (ED) was published in July 2024 to propose “more reductions” to disclosure requirements from new or amended IFRS Accounting Standards issued between February 2021 and May 2024 (e.g., IFRS 18, Supplier Finance Arrangements, International Tax Reform—Pillar Two Model Rules, Lack of Exchangeability, Amendments to the Classification and Measurement of Financial Instruments). Comments on this ED were due by November 27, 2024.
• No Reductions for Rate-Regulated Activities (Prospective RARL Standard): At this stage, the IASB is not proposing reduced disclosure requirements for entities applying the prospective “Regulatory Assets and Regulatory Liabilities” (RARL) Standard, citing “limited potential for reducing the disclosure requirements” and “various benefits associated with delaying consideration.”

8. EU Endorsement Process

For IFRS 19 to be applicable in the EU, it must undergo an endorsement process.

• Endorsement Advice Request: EFRAG received an “endorsement advice request” from the European Commission on September 17, 2024.
• Timeline: EFRAG plans to publish the draft endorsement advice for public consultation in the first half of 2025 and submit the final advice to the European Commission in September 2025. The EC will then decide on endorsement, subject to scrutiny by the European Parliament.
• Assessment Criteria: IFRS 19 will be assessed against “EU endorsement criteria, including technical criteria,” and whether it is “conducive to the European public good.” This includes a “deeper cost-benefit analysis,” assessing the number of affected entities (potentially “150 000 subsidiaries”), and a “comparison with the EU Accounting Directive.”
• Early Adoption: Early adoption of IFRS 19 in the EU “could be difficult on that timeline” due to the ongoing endorsement process.
• Catch-up ED Excluded from Initial Endorsement: The endorsement process for IFRS 19 “would not include the consequential amendments covered in the catch-up ED.” However, EFRAG “plans to accelerate the endorsement process for the amendments to support the implementation of IFRS 19 in one package by preparers.”

9. Conclusion

IFRS 19 represents a significant step by the IASB to streamline financial reporting for a specific subset of entities: subsidiaries without public accountability whose parent prepares consolidated IFRS financial statements. By offering reduced disclosure requirements while maintaining full IFRS recognition and measurement principles, it aims to deliver substantial cost savings and efficiency gains across multinational groups. While transition costs and complexities with local regulations exist, the overall sentiment from stakeholders, particularly preparers and users, is overwhelmingly positive, with 100% of EFRAG event attendees voting “Yes” to IFRS 19 endorsement in the EU. Its success hinges on widespread adoption and effective integration into various jurisdictional frameworks.