UKEB invites engagement on the draft endorsement assessment of IFRS 19

The International Accounting Standards Board (IASB) published IFRS 19 Subsidiaries without Public Accountability: Disclosures in May 2024. IFRS 19 is a new voluntary IFRS® Accounting Standard that sets out, for eligible subsidiaries, reduced disclosure requirements compared with those in full IFRS Accounting Standards.

IFRS 19 aims to enable eligible subsidiaries to simplify their reporting systems and processes, reducing the costs of preparing their financial statements while maintaining the usefulness of the financial information provided to users.

Subject to its endorsement by the UK Endorsement Board (UKEB), the Standard is effective from 1 January 2027 (with earlier application permitted).

Scope of IFRS 19

IFRS 19 is only applicable to subsidiaries that do not have public accountability and whose parent prepares publicly available consolidated financial statements under full IFRS Accounting Standards. The Standard defines an entity as having public accountability if:

• its debt or equity instruments are traded in a public market; or
• it holds assets entrusted to it by its customers (ie, in a fiduciary capacity).

Applying IFRS 19

As it is a disclosure-only standard, IFRS 19 does not change the recognition, measurement or presentation requirements in other IFRS Accounting Standards. These must still be followed by entities applying IFRS 19.

For example, if an entity applying IFRS 19 was accounting for inventories, it would follow the recognition, measurement and presentation requirements in IAS 2 Inventories but the disclosure requirements in the IFRS 19 section relating to IAS 2.

Why are UK stakeholders’ views important for this consultation?

Stakeholder feedback is important to the UKEB, so it can:

• test tentative conclusions that IFRS 19 aligns with the needs of UK entities preparing financial statements, users of financial reporting information and any other stakeholders affected;
• identify potential benefits or challenges associated with IFRS 19; and
• ensure that endorsement of IFRS 19 for use in the UK meets the broader goal of maintaining high-quality financial reporting that supports users’ decision-making and enhances management accountability.

Stakeholder feedback is, therefore, important to help the UKEB decide whether the Standard is suitable for use in the UK.

Who should respond to this consultation?

Any UK stakeholders that could be impacted by the endorsement and adoption of IFRS 19.

What is in the [Draft] ECA?

The [Draft] ECA presents the work conducted by the UKEB to date to assess whether IFRS 19 meets the UK’s statutory requirements for adoption of IFRS Accounting Standards, as set out in Regulation 7 of Statutory Instrument 2019/685 (SI 2019/685).

Criteria for Adoption

The UKEB’s assessment addresses three statutory endorsement criteria. For each of these criteria, the assessment considers the Standard, as a whole, and is outlined below:

1. Whether IFRS 19 meets the criteria of understandability, relevance, reliability and comparability (referred to as the technical accounting criteria) required of the financial information needed for making economic decisions and assessing the stewardship of management. The [Draft] ECA includes an overview of the main requirements in IFRS 19 and its potential accounting impact as well an analysis of key aspects of reductions in disclosures.

2. Whether IFRS 19 is likely to be conducive to the long-term public good in the UK. This assessment considers:
   • whether IFRS 19 is likely to improve the quality of financial reporting in the UK;
   • the costs and benefits likely to result from the use of IFRS 19 in the UK; and
   • whether the use of IFRS 19 is likely to have an adverse effect on the economy of the UK, including on economic growth.

3. Whether IFRS 19 contains any requirement that would prevent accounts (both individual and consolidated) prepared using IFRS 19 from giving a true and fair view. This assessment considered the impact of IFRS 19 and its interaction with other UK-adopted international accounting standards.

The Board also considered whether IFRS 19 is likely to lead to a significant change in accounting practice (as set out in Regulation 11 of SI 2019/685), which determines whether the UKEB is required to conduct a post implementation review of the Standard, in line with legislation.

In its endorsement assessment, the UKEB tentatively concludes that:

1. IFRS 19 meets the technical accounting criteria. It notes that the reduced disclosures in IFRS 19 will still result in understandable, relevant, reliable and comparable information for users of the financial statements.

2. The adoption of IFRS 19 would be likely to be conducive to the UK public good.
   • It will enable groups that have eligible subsidiaries and that use IFRS Accounting Standards for their consolidated financial statements, to apply consistent accounting policies when preparing financial statements throughout the group.
   • Research indicates that users anticipate the suggested reduced disclosures are tailored towards their needs and carry a limited risk that they will lose decision-useful information.
   • There will be substantial variation in the nature and extent of the costs and benefits of using IFRS 19 for each entity, depending on their specific circumstances.
   • The analysis of wider economic effects suggests that IFRS 19 is not expected to lead to other economic effects that are detrimental to the UK economy, including on economic growth.

3. IFRS 19 is not contrary to the principle of true and fair view. The assessment does not identify any requirement in IFRS 19 that would prevent individual or consolidated accounts prepared using the Standard from giving a true and fair view of the entity’s assets, liabilities, financial position and profit or loss.

What evidence did the UKEB use for this assessment?

The UKEB has based its assessment in the [Draft] ECA on evidence gathered by means of targeted outreach:

• engagement with its Advisory Groups;
• interviews with preparers considering applying IFRS 19; and
• interviews with users (principally bank lending departments using subsidiaries’ financial statements).

Supporting stakeholders

As well as assessing the suitability of IFRS 19 for use in the UK, the UKEB has produced educational material to support stakeholders:

• An overview of the UK accounting framework and of the overarching differences between IFRS 19 and FRS 101 Reduced Disclosure Framework.
• A snapshot of IFRS 19
• A snapshot ‘IFRS 19 Long Term Public Good: Costs and Benefits for Preparers and Users’

For more information on the UKEB’s work on IFRS 19, visit its IFRS 19 endorsement project page.

UK Endorsement Board Secretariat