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Subsidiaries with no public reporting obligation: Disclosures.
The International Accounting Standards Board (IASB) has issued International Financial Reporting Standard (IFRS) 19, a new regulation designed to transform the corporate financial reporting landscape.
This standard arose as a strategic response to a recurring problem in business groups: the administrative burden faced by subsidiaries when applying full IFRS, which frequently results in disproportionate disclosures that exceed the real information needs of their users.
The implementation of IFRS 19 introduces a valuable opportunity for corporate efficiency. By empowering eligible entities to simplify their reporting systems and processes, the standard not only enables a significant reduction in the costs and efforts associated with the preparation of financial statements, but achieves this objective without sacrificing the quality of information. In this way, the perfect balance between operational optimization and maintaining the usefulness and relevance of financial data for decision making is ensured.
Which entities have a public obligation to report financial information?
An entity is considered public if:
a) its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or
b) holds assets in a fiduciary capacity for a broad group of third parties as one of its principal activities (e.g., banks, credit unions, insurance companies, broker-dealers, mutual funds and investment banks typically meet this second criterion).
Which entities can apply this IFRS 19?
Some entities may manage assets in a fiduciary capacity for a wide group of third parties, since they manage financial resources entrusted to them by clients, users or members who do not participate in the management of the entity. However, if they do so for reasons outside their core business (such as, for example, travel or real estate agencies, schools, charities, cooperatives that require a token deposit for their members and vendors that receive payment in advance), this does not make them publicly accountable.
An entity may elect to apply this Standard in its consolidated, separate or individual financial statements if, and only if, at the end of the reporting period:
a) is a subsidiary;
b) has no public liability; and
c) has an ultimate or intermediate holding company that prepares consolidated financial statements available for public consultation that comply with International Financial Reporting Standards (IFRS).
IFRS 19 will become effective for annual periods beginning on or after January 1, 2027, and its early application will be permitted, and this situation must be disclosed in the notes to the financial statements.
The optimal strategy is to coordinate the adoption of IFRS 19 with that of IFRS 18 (Presentation and Disclosures in Financial Statements). Implementing IFRS 19 before IFRS 18 is possible, but not advisable, as it would require modifying the presentation of the statement of comprehensive income twice. To facilitate an efficient transition, the IASB established the same effective date for both standards - January 1, 2027 - allowing a simultaneous adoption that maximizes benefits and minimizes disruption.
An entity that applies IFRS 19 shall not describe its financial statements as complying with IFRSs unless it complies with the requirements of this Standard and all applicable requirements of other IFRSs. An entity that applies IFRS 19 shall, as part of its unreserved statement, state that it has applied IFRS 19, for example "These financial statements have been prepared in accordance with International Financial Reporting Standards and the reduced disclosure requirements of IFRS 19 - Non-Publicly Reportable Subsidiaries: Disclosures."
Why is the new IFRS 19 important for governments?
IFRS 19 allows some subsidiaries to apply IFRS with reduced disclosure requirements, which reduces the administrative burden and effort, as well as highlighting the relevant financial information from the subsidiary's point of view. The objective of IFRS 19 is to specify the disclosure requirements that an entity may apply in lieu of the disclosure requirements set out in other IFRS Accounting Standards.
IFRS 19 simplifies the financial information systems and processes of companies, reducing the costs of preparing the financial statements of subsidiaries, without losing usefulness for the users of the financial statements.
In accordance with IFRS 18 Presentation and Disclosures in Financial Statements, an entity applying this Standard does not need to provide a specific disclosure required by IFRS 19 if the information resulting from that disclosure would not be material. An entity that chooses to apply IFRS 19 applies the requirements of other IFRSs (initial recognition, subsequent recognition, presentation, among others), except for the disclosure requirements. Instead, the entity applies the requirements of IFRS 19.
How does the new IFRS 19 help?
For multinational organizations, this assessment is not a mere compliance issue, but a strategic decision capable of redefining the efficiency of the financial back-office, reducing the compliance burden and unlocking the capacity of resources to focus on higher value activities.
Large multinational companies operate in a highly complex environment, managing several subsidiaries spread across multiple countries. This global structure, while essential for growth, creates significant accounting and financial reporting challenges. IFRS 19 addresses the root cause of these systemic inefficiencies that consume resources and increase operational burden.
Financial statement preparers globally have identified three main challenges that the current model imposes on their organizations:
IFRS 19 directly addresses these challenges by proposing a unified model that eliminates the need to maintain and reconcile multiple accounting frameworks at the subsidiary level.
While the transition involves a "one-time cost" of initial implementation, financial leaders agree that the long-term benefits far outweigh this investment. The elimination of redundant processes generates a positive and sustainable return on investment.
The financial, operational and strategic benefits - from dramatically reduced costs and effort to improved data consistency and support for new global requirements such as OECD Pillar 2 - build a compelling business case for adoption.
An entity that elects to apply this Standard in one reporting period may subsequently revoke that election; however, the entity must provide comparative information (i.e., prior period information) for all amounts in the current period's financial statements.
At PGA, we transform regulatory complexity into operational advantage. Our international regulatory experts are ready to guide your management through a seamless transition, whether you opt for early implementation on January 1, 2026 or prefer to chart a structured path toward effective implementation in 2027. Don't let the technical burden distract your resources; let us manage this change so that your team remains focused on maximizing business profitability.
Anticipation is key to successful adoption. Don't wait for deadlines to pass; contact our representatives today for an initial assessment and ensure your company's compliance with complete certainty.
Written by Juan Carlos Arroyo Guevara.
