ASCG comments on IASB ED/2021/7

On 31 January 2022, the ASCG sent their comment letter on the IASB ED/2021/7 Subsidiaries without Public Accountability: Disclosures to the IASB.

In this Exposure Draft, the IASB proposed a new IFRS Standard that would permit companies without public accountability (i.e., entities that are not financial institutions or listed on a stock exchange) to apply IFRS Standards with a reduced set of disclosure requirements (we reported).

In our comment letter, we support the IASB’s objective to develop an IFRS Standard with reduced disclosure requirements for subsidiaries. In our opinion, the draft Standard would provide considerable relief for eligible subsidiaries, as the IASB proposes significantly fewer disclosure requirements when compared to the full disclosure requirements of IFRS Standards (for example, regarding the disclosure requirements of IFRS 7, IFRS 12 and IFRS 13).

We also agree to limit the scope of the draft Standard to subsidiaries without public accountability for the time being. At the same time, however, we recommend the IASB evaluate in due course whether the scope of the draft Standard could be expanded.
Furthermore, we also note in our comment letter that – even if the final IFRS Standard is endorsed into European Law – the scope of its application for German subsidiaries remains to be determined by the implementation of the IAS Regulation (Regulation (EU) 1606/2002) in the German Commercial Code. Since the publication of separate financial statements prepared in accordance with IFRS Standards (§ 325 (2a) German Commercial Code) is barely used in practice, and since sub-group consolidated financial statements in accordance with IFRS Standards (option according to § 315e (3) German Commercial Code) are rarely prepared (due to the exemption for subsidiary undertakings; ref. § 291 seq. German Commercial Code), the draft Standard would primarily be relevant for foreign subsidiaries of German groups, provided that applying IFRS Standards in separate financial statements is permitted under the respective national law of the subsidiary.

We generally agree with the approach adopted by the IASB to developing the reduced disclosure requirements. However, in view of the IASB’s decision to generally using the disclosure requirements of the IFRS for SMEs Standard, when the recognition and measurement requirements in IFRS Standards and the IFRS for SMEs Standard are the same, we do not agree with the IASB adding disclosure requirements from IFRS Standards, when there are no recognition or measurement differences. On the other hand, we deem some disclosure requirements of the IFRS Standards to be provide useful information for users of subsidiaries financial statements, which, however, are neither required by the IFRS for SMEs Standard nor the draft Standard. We therefore suggest the IASB develop a table of concordance to explain these differences in disclosure requirements.

Furthermore, the structure of the draft Standard does not appear to be user-friendly, as in some cases the draft Standard refers by footnotes to disclosure requirements in other IFRS Standards that remain applicable to subsidiaries. In our comment letter, we therefore recommend the IASB reorganise the requirements applicable to subsidiaries (i.e., both the recognition and measurement requirements of IFRS Standards and the disclosure requirements of the draft Standard) in a single, comprehensive document.

Details are outlined in the ASCG comment letter, which is available on the ASCG’s website.