On May 17, 2024, the Director of the Division of Corporation Finance of the Securities and Exchange Commission, Erik Gerding, and the Chief Accountant, Paul Munter, issued a statement regarding International Financial Reporting Standard (IFRS) 19, Subsidiaries without Public Accountability:  Disclosures, or IFRS 19. 

What is IFRS 19?  IFRS 19 allows certain subsidiaries of reporting companies to provide reduced disclosures in certain instances.  In announcing the adoption of the standard, the International Accounting Standards Board (IASB) noted that “Applying IFRS 19 will reduce the costs of preparing subsidiaries’ financial statements while maintaining the usefulness of the information for users of their financial statements.”  The IASB went on to explain that when a parent company prepares consolidated financial statements that comply with IFRS Accounting Standards, its subsidiaries are required to report to the parent using IFRS Accounting Standards. However, for their own financial statements, subsidiaries are permitted to use IFRS Accounting Standards, the IFRS for SMEs Accounting Standard or national accounting standards and this may mean that subsidiaries keep more than one set of accounting records and “provide disclosures that may be disproportionate to the information needs of their users.”  A subsidiary is eligible to apply IFRS 19 if it does not have equities or debt listed on a securities exchange or hold assets in a fiduciary capacity for third parties, and its parent company applies IFRS Accounting Standards in their consolidated financial statements.

Interaction with SEC rules:  The joint statement points out that there may be situations when financial statements that apply IFRS 19 are included in SEC filings.  In these instances, the Division Director and Chief Accountant noted that they believe that the requirements of IFRS 19 are likely to necessitate additional disclosures in financial statements filed with the SEC because such financial statements are intended for use by investors in the capital markets for making investment and voting decisions.

The joint statement acknowledges the IASB’s efforts to promote efficiency but highlights the need to maintain “decision-useful information for users of financial statements in certain contexts.”  The Division Director and Chief Accountant point to the requirement in IFRS 19 for entities to consider whether additional disclosures are necessary to provide an understanding of particular events or circumstances and observe that “disclosures that are fit for other purposes for entities without public accountability may not be sufficient to satisfy the needs of investors in the U.S. public securities markets.” 

See the full text of the statement.