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FRC’s Response to Exposure Draft Consolidation Exception - Proposed amendments to the IFRS for SMEs Accounting Standard
Linda Mezon-Hutter IASB Acting Chair International Accounting Standards Board Columbus Building 7 Westferry Circus Canary Wharf London E14 4HD
16 July 2026
Exposure Draft Consolidation Exception—Proposed amendments to the IFRS for SMEs Accounting Standard
Dear Linda,
I am writing on behalf of the UK's Financial Reporting Council (FRC) in response to the above Exposure Draft1.
This response draws on the FRC's experience in developing financial reporting standards applicable in the UK and Republic of Ireland. The FRC's overriding objective in developing financial reporting standards is to enable users of accounts to receive high-quality understandable financial reporting proportionate to the size and complexity of the entity and users' information needs. In achieving its overriding objective, the FRC aims to provide succinct financial reporting standards that, amongst other things, have consistency with global accounting standards through the application of an IFRS-based solution unless an alternative clearly better meets the overriding objective.
The FRC's accounting standards include FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. The requirements in FRS 102 are based on the IFRS for SMEs Accounting Standard (the Standard), modified in terms of the scope of entities eligible to apply it, the accounting treatments provided, and the required disclosures.2 In some instances, those modifications include incorporating requirements that are consistent with IFRS Accounting Standards.
The Standard is not itself directly applicable in the UK or Republic of Ireland, but provides a basis for our local standards. The FRC strongly supports the existence of the Standard as a stand-alone, simplified set of accounting principles for entities without public accountability and commends the Board for continuing to develop and maintain the Standard. We think that it contributes to high-quality financial reporting generally for a very significant population of companies.
In general, we support the idea that the Standard may need amendment for urgent matters between comprehensive reviews, and that this can be targeted through narrow-scope amendments. This is an approach consistent to that we take for FRS 102 and provides a cost-efficient way for specific groups of preparers to benefit from enhancements, whilst other entities unaffected by that issue do not incur costs.
In the UK and Republic of Ireland, local laws specify when an entity must present consolidated financial statements. However, considering the context of this Exposure Draft, we agree with the Board's proposal to amend the Standard in order to deliver consistency with IFRS 10 Consolidated Financial Statements. We also agree that this is an urgent issue and that it is appropriate to make these amendments as a separate standard-setting project outside a comprehensive review.
Our comments in response to your questions are included in the Appendix. If you have any queries or would like to discuss our comments in more detail, please do not hesitate to contact Stephen Maloney (Senior Project Director) or Adrian Wallis (Project Director) at [email protected].
Yours sincerely,
Mark Babington Executive Director, Regulatory Standards Direct telephone line: 020 7492 2323 Email: [email protected]
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Appendix: Responses to the questions for respondents
Question 1—Proposed amendments to paragraph 9.3 of the IFRS for SMEs Accounting Standard
Paragraph 9.3 of the IFRS for SMEs Accounting Standard (Standard) permits a parent not to present consolidated financial statements if its ultimate parent (or any intermediate parent) produces consolidated general purpose financial statements that comply with full IFRS Accounting Standards or the Standard.
The IASB is proposing to extend the exception from presenting consolidated financial statements. Under the proposed extension, a parent need not present consolidated financial statements if its ultimate parent (or any intermediate parent) produces financial statements that comply with full IFRS Accounting Standards, in which investments in subsidiaries are measured at fair value through profit or loss in accordance with IFRS 10 Consolidated Financial Statements.
Paragraphs BC6–BC16 explain the IASB's rationale for this proposal.
Do you agree with this proposal? Why or why not? If you disagree, please state whether you suggest the IASB consider this amendment in the next periodic review of the Standard, or not at all.
A1As noted in paragraph BC14, the IASB expects the exemption to have effect for SMEs in jurisdictions without local laws or regulations specifying the circumstances in which entities must present consolidated financial statements (which could therefore override the exceptions otherwise available in accounting standards). The UK and the Republic of Ireland both have such laws, which are reflected in FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
A2Our response to this Exposure Draft takes into account the extant exceptions available in IFRS 10 Consolidated Financial Statements which provide the context for the IASB's proposal.
Proposed alignment of consolidation exceptions
A3We agree that it is disproportionate for the Standard to be more onerous than 'full' IFRS Accounting Standards. Therefore, we agree with the IASB's intention to amend the Standard to make available the same consolidation exception that is available in paragraph 4(a)(iv) of IFRS 10.
A4Subject to the further comments below, we agree that the proposal in the Exposure Draft should achieve the IASB's intention in a proportionate manner.
Loss of information for users
A5Paragraph BC12 of the Exposure Draft states that one of the effects of these amendments could be a loss of information for some users of financial statements.
A6The UK and the Republic of Ireland both have local laws that specify when entities must present consolidated financial statements. These laws facilitate a number of exemptions, some of which result in comparable reporting to that in proposed paragraph 9.3. These exemptions have been in place for many years, and we have not received feedback from users of financial statements concerned about the information that is available to them. However, we acknowledge that these exemptions are not identical to the proposals in the Exposure Draft and that the needs of users in jurisdictions that apply the Standard could be different from those in the UK and Republic of Ireland.
A7Proposed paragraph 9.3(b)(ii) of the Standard is not the same as paragraph 4(a)(iv) of IFRS 10 in that:
- it does not require non-controlling owners to be informed about, and not object to, the parent not presenting consolidated financial statements; and
- there is no requirement for the parent's financial statements to be available for public use.
In the absence of these requirements, non-controlling owners and other users may be at some disadvantage under the Standard compared with the corresponding provisions of IFRS 10. Similar requirements apply under local laws and regulations in the UK and Ireland and we have not received feedback that they are unduly burdensome. The IASB might, therefore, consider transposing those requirements into the Standard. However, we note that the proposed approach is consistent with the availability of the exception in extant paragraph 9.3(b) of the Standard.
The drafting of the proposed amendment
A8We think that it is important for the drafting of the exception in proposed paragraph 9.3(b)(ii) to be clear that it only includes scenarios where subsidiaries are measured at fair value through profit or loss in accordance with IFRS 10 and not, for example, in accordance with paragraph 10(b) of IAS 27 Separate Financial Statements. We think the clarity of the drafting could be enhanced by splitting proposed paragraph 9.3(b)(ii) into two further subparagraphs or, at the least, by removing the second comma so that the drafting is the same as paragraph 4(a)(iv) of IFRS 10. (Similarly, paragraph IN6 of the Exposure Draft could have been more precisely worded, for example it refers to 'all' subsidiaries, rather than contemplating that some might be ignored on the grounds of materiality, and it does not refer to IFRS 10.)
A9In addition, we think that the way in which the proposed amendment to paragraph 9.3(b) is marked up could more clearly show that there is no change to the extant exception in respect of an entity whose parent prepares consolidated financial statements in accordance with the Standard.
A10Accordingly, we suggest that a clearer articulation of the proposed amendment could be:
> 9.3 A parent need not present consolidated financial statements if both of the following conditions are met: >
-
>
- the parent is itself a subsidiary; and >
- its ultimate parent (or any intermediate parent) produces:
>
-
>
- consolidated general purpose financial statements that comply with full IFRS Accounting Standards or with this Standard; or >
- general purpose financial statements that comply with full IFRS Accounting Standards, in which subsidiaries are:
>
-
>
- consolidated; or >
- measured at fair value through profit or loss in accordance with IFRS 10 Consolidated Financial Statements. >
>
>
The timing of the proposed amendment
A11We support the idea that the Standard may need amendment for urgent matters between comprehensive reviews. This is an approach that we take in relation to FRS 102, and it can be a cost-efficient measure for preparers.
A12Taking into account the effective date of the third edition of the Standard, we agree there is an urgent need to consider amending the Standard for this specific issue and we support the IASB considering these amendments as a separate standard-setting project outside a comprehensive review.
Question 2—Effective date and transition
The IASB is proposing that an entity apply the amendments to paragraph 9.3 of the Standard at the same time and on the same basis as it applies the third edition of the Standard.
Paragraph BC17 explains the IASB's rationale for this proposal.
Do you agree with this proposal? Why or why not? If you disagree, please explain what you would suggest instead and why.
A13We think that making the amendments effective at the same time as the third edition of the Standard is appropriate and would minimise disruption and ease implementation for preparers. However, we think that an entity should be able to adopt the amendments to paragraph 9.3 early without having to also apply all the other amendments included in the third edition of the Standard at the same time. The proposed amendments do not depend on any changes made by the Second Comprehensive Review of the Standard; address an issue that already existed in the second edition of the Standard; and the exception introduced will be optional. Therefore, we think that the exception should be made available immediately on issue to enable entities applying the Standard to benefit as soon as possible from the same cost savings that are available to comparable entities applying full IFRS Accounting Standards.