Reduced disclosures for subsidiaries: sensible solution or source of confusion?

Friday, September 10, 2010 | Posted by: Grant Thornton
Categories: Future of UK GAAP | Tags: IFRS, IFRS for SMEs, UK GAAP, financial reporting, SMEs, ASB, Future of UK GAAP project

This issue should provide the proof, for anyone who suspected otherwise, that the ASB does read and consider the comment letters it receives.

By Katherine Martin, our secondee to the ASB as a Project Director on the Future of UK GAAP project

The amended proposals for the Future of UK GAAP will include a reduced disclosure framework for most subsidiaries, something ruled out in the original consultation paper. The comment letters contained two main lines of argument. Firstly, since neither full IFRS or the IFRS for SMEs allow any exemptions for subsidiaries, the resulting loss of the exemptions in current UK GAAP would impose an unnecessary additional burden. Secondly, there was seen to be an unappealing choice for subsidiaries included in IFRS group accounts between IFRS for SMEs (leading to consolidation adjustments) and full IFRS (with the lengthy IFRS disclosures).

The solution to the problem for IFRS groups? Allow subsidiaries an option of full IFRS but with reduced disclosures. Given the strength of feeling demonstrated by the comment letters, the ASB had a re-think, and agreed that there was a valid argument for such a reduced disclosure framework. They looked at all of the suggestions made, as well as a detailed review of the disclosure requirements of each and every standard. The resulting list of disclosure exemptions aims to provide relief from the most onerous IFRS disclosures, particularly where these are considered pretty meaningless at an individual subsidiary level.

Then, of course, it doesn’t make sense for a subsidiary using full IFRS to have less disclosures than one using IFRS for SMEs. So, some equivalent exemptions have been introduced for these, including the cash flow statement (sighs of relief all round, I expect).

Some commentators have criticised these proposals as too complicated, considering that this will lead to too much diversity in disclosure and will be confusing for users. But really, all it means is that subsidiaries can take some exemptions - which is the case at the moment. And actually I think it will be more straightforward, since the permitted exemptions are gathered together in one place in the standard, and the same exemptions apply to all subsidiaries which qualify.

Of course, as someone somewhere once said, ‘you can’t please all of the people all of the time’. Perhaps the best the ASB can achieve is to do what it considers the right thing for financial reporting, and hope that this pleases at least some of the people, most of the time.

So, would a reduced disclosure framework please you? Let me know…

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