Who can apply the standard
The following conditions must be met at the end of the reporting period before a company can elect to apply IFRS 19:
- It is a subsidiary (including an intermediate parent) as defined in IFRS 10 Consolidated Financial Statements.
- It does not have public accountability.
- It has a parent (either ultimate or intermediate) that prepares consolidated financial statements, available for public use, which comply with IFRS.
An eligible company can apply IFRS 19 in its consolidated, separate or individual financial statements. IFRS 19 is applicable for both annual and interim reporting.
How does IFRS 19 work
An eligible company that opts to apply IFRS 19 needs to apply the requirements in other IFRS accounting standards for recognition, measurement and presentation, but not for disclosure purposes. Instead, it applies the reduced disclosure requirements in IFRS 19. The IFRS 19 disclosures are a reduced version of the disclosures set out in other IFRS accounting standards.
For example, an eligible subsidiary that holds items of inventory applies IAS 2 Inventories to their recognition, measurement and presentation. However, it does not apply disclosure requirements from IAS 2, but instead applies the reduced disclosure requirements in IFRS 19 that are listed under the subheading, ‘IAS 2 Inventories’.
IFRS 19 does not include disclosure requirements applicable to companies' reporting segments or earnings per share and insurance contracts. Therefore, an entity applying IFRS 19 involved in any of these three topics, will have to apply IFRS 8 Operating Segments, IFRS 17 Insurance Contracts and IAS 33 Earnings per Share, respectively, for disclosure purposes. The application of IFRS 19 is voluntary for companies that meet the eligibility criteria. An entity can revoke its election to apply IFRS 19 at any time and reapply it in a later period.
How do eligible subsidiaries, and the group, benefit from applying IFRS 19
IFRS 19’s impact on the disclosures will differ across companies depending on the specific facts and circumstances. However, the IASB believes that the benefit could be significant; indeed, an analysis of a sample of financial statements found that the reduction in the volume of disclosures from applying IFRS 19 could reach, for example, 68% for IFRS 12 Disclosure of Interests in Other Entities and 64% for IAS 16 Property, Plant and Equipment.
The application of IFRS 19 could bring cost savings to both the company and the group as a result of three factors:
- Elimination of dual accounting records
Since subsidiaries applying IFRS 19 will use the same recognition and measurement requirements as the parent that are included in other IFRS accounting standards, this could eliminate the need for keeping dual accounting records - one, for instance, local GAAP or IFRS for SMEs, for statutory reporting purposes and another, IFRS accounting standards, for group reporting purposes. In addition to freeing up resources for other activities, the application of IFRS 19 could also remove the need for companies to maintain a knowledge of both IFRS and local GAAP requirements.
- More efficient preparation process
The time, cost and effort to prepare the reduced disclosures required by IFRS 19 in the subsidiary’s financial statements will decrease. This, together with the alignment in presentation requirements of the subsidiary and the group that is enabled by IFRS 19, could reduce the need for multiple, or more complex, financial reporting IT systems.
The election to apply IFRS 19 eliminates the need for keeping a second set of accounting records for group reporting purposes, and as a result, any auditing costs incurred may also be reduced.
