In May 2024, the International Accounting Standards Board (“IASB”) issued International Financial Reporting Standard (“IFRS”) 19, Subsidiaries without Public Accountability: Disclosures (“IFRS 19”), which permits certain subsidiaries of reporting companies to provide reduced disclosures when applying recognition, measurement, and presentation requirements of IFRS Accounting Standards.[2] IFRS 19 also specifies that eligible subsidiaries that elect to apply the standard must provide additional material disclosures when it determines that information is necessary to enable financial statement users to understand the impact of transactions, events, and conditions on the subsidiary’s financial position and financial performance.[3] Although the scope of IFRS 19 is limited to entities that do not have public accountability[4] at the end of their financial statement reporting period, there may be situations when financial statements that apply IFRS 19 are included in filings with the Securities and Exchange Commission (the “SEC” or the “Commission”). In these situations, we believe that the requirements of IFRS 19 are likely to necessitate additional disclosures in financial statements filed with the SEC because such financial statements are intended for use by investors in our public capital markets for making investment and voting decisions.

Under SEC rules, registrants are generally required to file certain financial statements prepared in accordance with U.S. GAAP.[5] Foreign private issuers,[6] however, are permitted to file financial statements that are prepared in accordance with IFRS as issued by the IASB, or, alternatively, in accordance with their home country GAAP with reconciliation to U.S. GAAP.[7] High quality financial information provided to investors is foundational to the integrity of our capital markets system. SEC rules specify that financial statements prepared in accordance with the applicable financial reporting framework (i.e., U.S. GAAP or IFRS as issued by the IASB) is the minimum requirement and registrants are required to consider whether additional material information is needed so that the required financial statements are not misleading.[8] This principle guides our interpretation of the application of IFRS 19 to the U.S. public securities markets.

In establishing the rules governing disclosure by foreign private issuers with securities trading in U.S. public securities markets, the Commission has recognized the importance of balancing the information needs of investors with the public interest served by opportunities to invest in a variety of securities. Historically, the Commission has supported initiatives to reduce regulatory burdens on foreign private issuers that are consistent with the Commission’s investor protection mandate.[9] We acknowledge the IASB’s efforts in promulgating IFRS 19 to promote efficiency for subsidiaries that do not have public accountability, whose parent company issues consolidated financial statements, inclusive of all disclosure requirements, in accordance with IFRS Accounting Standards,[10] while maintaining decision-useful information for users of financial statements in certain contexts. We also believe the requirement in IFRS 19 for entities to consider whether additional disclosures are necessary to provide an understanding of particular events or circumstances is critical for investor protection purposes in U.S. public securities markets. Disclosures that are fit for other purposes for entities without public accountability may not be sufficient to satisfy the needs of investors in the U.S. public securities markets.[11]

As just one example, if a foreign private issuer files documents with the SEC related to a merger with a foreign business that qualifies for and elects to apply IFRS 19, and the registrant is required to provide financial statements of the foreign business, the foreign business is required by IFRS 19 to consider whether additional material disclosures need to be included in its financial statements to enable investors to understand the impact of transactions, other events, and conditions on the foreign business’s financial position and financial performance. The purpose of including the foreign business’s financial statements in the SEC filing at the time of the transaction is to help investors better understand the nature and extent of the business being acquired and the resulting combined entity when making their voting or investment decisions. Given the purpose of inclusion of the foreign business’s financial statements in the registration statement, the needs of investors would likely be similar to the needs of investors in an entity with public accountability.[12] In such a scenario, even though the foreign business may be eligible to and has elected to apply IFRS 19 in order to benefit from reduced disclosures, it should carefully consider whether it is nevertheless required to include additional material disclosures from other IFRS Accounting Standards to achieve the objectives of financial reporting given the use of those financial statements in a filing with the SEC.[13]

We are committed to assisting registrants in fulfilling their responsibilities related to providing high-quality financial information to investors and other users of financial statements, and we remain available for consultation on issues related to the form and content of financial statements[14] and technical accounting matters,[15] including application of IFRS 19 in Commission filings.