January 31, 2022
International Accounting Standards Board (Board)
Submitted via email to [email protected]
Re: IFRS Exposure Draft ED/2021/7 Subsidiaries without Public Accountability: Disclosures
Dear Board Members:
The Virginia Society of CPAs (VSCPA) Accounting & Auditing Advisory Committee has reviewed the proposed Exposure Draft (ED) ED/2021/7 — Subsidiaries without Public Accountability: Disclosures, issued by the International Accounting Standards Board.
The VSCPA is a leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. The VSCPA membership consists of more than 13,000 individual members who actively work in public accounting, private industry, government and education.
The VSCPA generally agrees with the objectives of the ED to reduce the reporting burden on subsidiaries without public accountability. However, we do not agree with using IFRS for SMEs as a basis for the new standards, as this would lead to significant analysis of the new set of standards for adopting subsidiaries and could potentially result in adopting subsidiaries requiring two sets of accounting records.
We are also submitting the following specific responses and comments on questions # 1 – 10 of the ED. Questions & Responses:
Question 1
Do you agree with the objective of the draft Standard? Why or why not? If not, what objective would you suggest and why?
We agree with the objective, as it is clear in its effort to reduce the administrative burden on subsidiaries that do not have public accountability. The benefits of the increased disclosure requirements are adequately realized by the public from intermediary or parent organizations that report under the full IFRS standards.
Question 2
Do you agree with the proposed scope? Why or why not? If not, what approach would you suggest and why?
Yes. The scope eliminates ambiguity while including the appropriate group of reporting entities. All benefits of increased disclosure requirements will be realized by intermediary or parent entities that have public accountability.
Question 3
Paragraphs BC23-BC39 of the Basis for Conclusions explain the Board’s reasons for its approach to developing the proposed disclosure requirements. Do you agree with that approach? Why or why not? If not, what approach would you suggest and why?
We believe that starting with IFRS for SMEs may not be the best basis for the draft Standard. It seems like it would make more sense to start with full IFRS for companies with public accountability and remove unnecessary standards rather than starting with IFRS for SMEs and adding standards. This way, the risk of a subsidiary adopting the draft Standard needing to come up with additional disclosures for its parent with public accountability would be reduced. Additionally, rather than list the draft Standard in an appendix, it should stand alone as its own set of standards much like IFRS for SMEs currently does. This avoids confusion and allows the adopting subsidiary to go to one place for all standards.
Question 4
Paragraphs BC40–BC52 of the Basis for Conclusions explain the Board’s reasons for the exceptions to its approach to developing the proposed disclosure requirements. Exceptions (other than paragraph 130 of the draft Standard) relate to:
- disclosure objectives (paragraph BC41);
- investment entities (paragraphs BC42–BC45);
- changes in liabilities from financing activities (paragraph BC46);
- exploration for and evaluation of mineral resources (paragraphs BC47–BC49);
- defined benefit obligations (paragraph BC50);
- improvements to disclosure requirements in IFRS Standards (paragraph BC51); and
- additional disclosure requirements in the IFRS for SMEs Standard (paragraph BC52).
a) Do you agree with the exceptions? Why or why not? If not, which exceptions do you disagree with and why? Do you have suggestions for any other exceptions? If so, what suggestions do you have and why should those exceptions be made?
Yes. To the extent that these exceptions still allow for subsidiaries without public accountability to report to their parent entities without necessitating multiple sets of accounting records, we agree with them.
b) Paragraph 130 of the draft Standard proposes that entities disclose a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities. The proposed requirement is a simplified version of the requirements in paragraphs 44A-44E of IAS 7 Statement of Cash Flows.
- (i) Would the information an eligible subsidiary reports in its financial statements applying paragraph 130 of the draft Standard differ from information it reports to its parent (as required by paragraphs 44A-44E of IFRS 7) so that its parent can prepare consolidated financial statements? If so, in what respect?
We don’t immediately foresee a way in which the information would differ. Subsidiaries applying the draft Standard would still need to present that information to the parent so that the parent entity could properly report their cash flows under IAS 7.
- (ii) In your experience, to satisfy paragraphs 44A-44E of IAS 7, do consolidated financial statements regularly include a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities?
We have not typically seen this type of reconciliation as a financial statement disclosure. However, as the current Standard requires, this information is available in the Statement of Cash Flows in either the financing activities section (principal) or supplementary disclosures section (interest).
Question 5
Any disclosure requirements specified in an IFRS Standard or an amendment to an IFRS Standard about the entity’s transition to that Standard or amended Standard would remain applicable to an entity that applies the Standard.
Paragraphs BC57–BC59 of the Basis for Conclusions explain the Board’s reasons for this proposal.
Do you agree with this proposal? Why or why not? If not, what approach would you suggest and why?
Yes, this proposal seems reasonable and necessary to eliminate any questions where the draft Standard does not cover a topic in other IFRS Standards. Overall, the goal should be to limit the amount of standards to which this proposal applies.
Question 6
The draft Standard does not propose to reduce the disclosure requirements of IFRS 17 Insurance Contracts. Hence an entity that applies the Standard and applies IFRS 17 is required to apply the disclosure requirements in IFRS 17.
Paragraphs BC61–BC64 of the Basis for Conclusions explain the Board’s reasons for not proposing any reduction to the disclosure requirements in IFRS 17.
- (a) Do you agree that the draft Standard should not include reduced disclosure requirements for insurance contracts within the scope of IFRS 17? Why or why not? If you disagree, from which of the disclosure requirements in IFRS 17 should an entity that applies the Standard be exempt? Please explain why an entity applying the Standard should be exempt from the suggested disclosure requirements.
We agree that it’s reasonable to scope IFRS 17 out of the proposed draft Standard. By their nature, nearly all entities working in insurance will have public accountability either through public ownership or holding assets in a fiduciary capacity for a broad group of outsiders as their primary business (see the definition of public accountability in the ED).
- (b) Are you aware of entities that issue insurance contracts within the scope of IFRS 17 and are eligible to apply the draft Standard? If so, please say whether such entities are common in your jurisdiction, and why they are not considered to be publicly accountable.
No.
Question 7
Paragraphs 23–30 of the draft Standard propose reduced disclosure requirements that apply to an entity that is preparing its first IFRS financial statements and has elected to apply the Standard when preparing those financial statements.
If a first-time adopter of IFRS Standards elected to apply the draft Standard, the entity would:
- apply IFRS 1, except for the disclosure requirements in IFRS 1 listed in paragraph A1(a) of Appendix A of the draft Standard; and
- apply the disclosure requirements in paragraphs 23–30 of the draft Standard.
This approach is consistent with the Board’s proposals on how the draft Standard would interact with other IFRS Standards.
However, IFRS 1 differs from other IFRS Standards—IFRS 1 applies only when an entity first adopts IFRS Standards and sets out how a first-time adopter of IFRS Standards should make that transition.
- (a) Do you agree with including reduced disclosure requirements for IFRS 1 in the draft Standard rather than leaving the disclosure requirements in IFRS 1?
Yes, the draft Standard adequately provides an alternative to the disclosure requirements in IFRS 1 and further supports the overall goal of the draft Standard to reduce the disclosure requirements.
Paragraphs 12–14 of the draft Standard set out the relationship between the draft Standard and IFRS 1.
- (b) Do you agree with the proposals in paragraphs 12–14 of the draft Standard? Why or why not? If not, what suggestions do you have and why?
Yes. They support the items discussed in item 7(a) above.
Question 8
Paragraphs 22–213 of the draft Standard set out proposed disclosure requirements for an entity that applies the Standard. In addition to your answers to Questions 4 to 7:
- (a) Do you agree with those proposals? Why or why not? If not, which proposals do you disagree with and why?
We agree with all proposals as stated.
- (b) Do you recommend any further reduction in the disclosure requirements for an entity that applies the Standard? If so, which of the proposed disclosure requirements should be excluded from the Standard and why?
We believe that there are no further reductions that would currently be necessary for the draft Standard to achieve its goals.
- (c) Do you recommend any additional disclosure requirements for an entity that applies the Standard? If so, which disclosure requirements from other IFRS Standards should be included in the Standard and why?
As the draft Standard is currently written, the only additional disclosure requirements we recommend are any that become necessary to allow parents of the subsidiaries using the draft Standard to consolidate the subsidiary accounting books as-is. In other words, we only recommend adding disclosure requirements if they make it less likely that the subsidiary will need to keep separate sets of books.
Question 9
Do you agree with the structure of the draft Standard, including Appendix A which lists disclosure requirements in other IFRS Standards replaced by the disclosure requirements in the draft Standard? Why or why not? If not, what alternative would you suggest and why?
Rather than use an appendix, we would suggest creating a separate book of standards much like IFRS and IFRS for SMEs. This way, there is a single source for the draft Standard that is equivalent to the existing sets of standards. The perception of the draft Standard would then be that it stands on its own as a complete set of standards rather than a supplement (and therefore more to learn and process) to the existing IFRS for SMEs standard.
Question10
Do you have any other comments on the proposals in the draft Standard or other matters in the Exposure Draft, including the analysis of the effects (paragraphs BC92–BC101 of the Basis for Conclusions)?
We have no other comments. Overall, this draft Standard will need to be monitored so that no entity reporting under it ends up having to keep separate sets of books, as it would defeat the underlying purpose of the draft Standard.
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The VSCPA appreciates the opportunity to respond to this ED. Please direct any questions or concerns to VSCPA Vice President, Advocacy Emily Walker, CAE, at (804) 612- 9428.
Sincerely,
Tamara Greear, CPA
Chair, VSCPA Accounting & Auditing Advisory Committee
2021-22 VSCPA Accounting & Auditing Advisory Committee
Tamara Greear, CPA — Chair
George Crowell, CPA — Vice Chair
Zach Borgerding, CPA
Scott Davis, CPA
Bo Garner, CPA
Joshua M. Keene, CPA
Nick Kinsler, CPA
Daniel Martin, CPA
Michael Phillips, CPA
Chris Smith-Christian, CPA
Charles M. Valadez, CPA
Natalya Yashina, CPA