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Explainer: FRS 101 Reduced Disclosure Framework and IFRS 19 Subsidiaries without Public Accountability: Disclosures (December 2024)
Explainer: FRS 101 'Reduced Disclosure Framework' and IFRS 19 'Subsidiaries without Public Accountability: Disclosures'
What different standards are available within the financial reporting framework?
To comply with UK or Irish company law, company financial statements must be prepared in accordance with either IFRS Accounting Standards adopted for use in the jurisdiction (referred to as 'adopted IFRS'), or Financial Reporting Standards (FRSs) set by the Financial Reporting Council (FRC).
Publicly listed companies are required to apply adopted IFRS in the preparation of their group accounts but may choose between adopted IFRS and FRSs for the preparation of their individual accounts. Most other entities have a choice between the two frameworks.
Further information on the financial reporting framework: UK Accounting Standards (overview).
What roles do the FRC and the UKEB play?
The FRC and the UK Endorsement Board (UKEB) have different roles in relation to the UK financial reporting framework:
- As part of its remit, the FRC is a prescribed body for issuing accounting standards (FRSs).
- The UKEB's statutory functions are: to influence the development of a single set of international financial reporting standards; and consider for adoption new or amended IFRS Accounting Standards, issued by the International Accounting Standards Board (IASB), for use in the UK when they meet the statutory criteria (UK-adopted IAS).
The FRC is also a prescribed body for issuing accounting standards in the Republic of Ireland. The endorsement and adoption of IFRS Accounting Standards for use in the EU, including the Republic of Ireland, is carried out by the European Commission (EU-adopted IFRS).
What is FRS 101 'Reduced Disclosure Framework'?
FRS 101 'Reduced Disclosure Framework' is an FRS developed and maintained by the FRC. The standard was first issued in 2012 and sets out an optional reduced disclosure framework for qualifying entities that otherwise apply the requirements of adopted IFRS. The standard is intended to enable cost effective financial reporting within groups to reduce reporting burdens, particularly for groups that apply IFRS Accounting Standards in their consolidated financial statements.
What is IFRS 19 'Subsidiaries without Public Accountability: Disclosures'?
In May 2024, the International Accounting Standards Board (IASB) issued IFRS 19 'Subsidiaries without Public Accountability: Disclosures'. This optional standard is part of IFRS Accounting Standards. It permits an eligible subsidiary to apply the recognition, measurement and presentation requirements in IFRS Accounting Standards, along with a reduced set of disclosure requirements, enabling more cost-effective and streamlined reporting within groups.
What are the key similarities and differences between FRS 101 and IFRS 19?
The objective of IFRS 19 is similar to that of FRS 101, but the IASB's approach to its development was different to the FRC's approach and there are significant differences between the two, for example:
| Area | Similarities | Differences |
|---|---|---|
| Scope | Both standards are available to subsidiaries. | IFRS 19 requires that the consolidated financial statements in which the entity is included are prepared in accordance with IFRS Accounting Standards; FRS 101 does not (although this is the main scenario for which FRS 101 was developed). FRS 101 is only available for use in individual financial statements, but IFRS 19 can also be used in consolidated financial statements prepared by an intermediate parent. FRS 101 is available for use in the individual financial statements of ultimate parent companies, as well as subsidiaries. |
| Mechanism | Both standards require transactions to be recognised and measured in accordance with adopted IFRS. | FRS 101 operates by providing exemptions from specific disclosure requirements of adopted IFRS (disclosures are therefore 'IFRS or nothing'). IFRS 19 sets out reduced disclosure requirements that are developed according to certain principles for the financial statements of subsidiaries without public accountability. In some cases these reduced disclosures differ from those required by IFRS Accounting Standards. |
| Disclosure reductions | The outcome of applying either standard is a set of financial statements with reduced disclosures that are based on IFRS Accounting Standards. | There are many differences between the specific reductions offered, for example FRS 101 financial statements are not required to prepare a statement of cash flows; IFRS 19 requires a statement of cash flows. |
How would IFRS 19 become part of the financial reporting framework?
IFRS 19 can only be used in the UK if the UKEB endorses it and it becomes part of the UK-adopted IAS suite of standards.
The UKEB is currently undertaking research and preparatory work ahead of its formal endorsement project. The UKEB is expected to commence the project in 2025. Further information: IFRS 19 | UK Endorsement Board.
The European Commission has asked the European Financial Reporting Advisory Group (EFRAG) to provide advice on endorsing IFRS 19 for use in the EU: The European Commission Letter to EFRAG requesting endorsement advice on IFRS 19.pdf. Further information: IFRS 19 Subsidiaries without Public Accountability: Disclosures, Endorsement consultation | EFRAG.
How does IFRS 19 affect the FRC's maintenance of FRS 101?
The FRC's established practice for maintaining FRS 101 is to conduct an annual review to assess changes to IFRS Accounting Standards after they are issued by the IASB, rather than after they are adopted in the UK or in the EU. This ensures that disclosure reductions are available in FRS 101 when the corresponding IFRS Accounting Standard becomes available. Should the relevant standard not be adopted, any reference in FRS 101 will be redundant and will simply be ignored.
FRED 86 'Draft amendments to FRS 101 Reduced Disclosure Framework – 2024/25 cycle' sets out the proposed amendments to FRS 101 resulting from the 2024/25 annual review.
It would not make sense for a qualifying entity to apply both IFRS 19 and FRS 101. Therefore, in FRED 86, amendments are proposed to FRS 101 that will prevent this from occurring.
The FRC intends to consider in due course how the overall level of disclosure required under FRS 101 compares with the overall level of disclosure required under IFRS 19 as part of broader considerations, informed by its recent research into preparers' experience of FRS 101, about how it can maximise the cost-effectiveness of FRS 101, bearing in mind the limited users of subsidiary financial statements.
Could both IFRS 19 and FRS 101 be available?
Yes.
If endorsed and adopted in the relevant jurisdiction, IFRS 19 would be available to entities preparing their financial statements in accordance with adopted IFRS, provided that they met the scope of the standard. FRS 101 would continue to be available to entities preparing their financial statements in accordance with FRSs, provided that they met the definition of a qualifying entity. Company law permits an entity to move between adopted IFRS and FRSs in certain circumstances.
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