TheCorporateCounsel.net

Last Friday, SEC Corp Fin Director Erik Gerding and Chief Accountant Paul Munter issued a joint statement on the application of IFRS 19 in SEC filings by foreign private issuers. The statement follows a May 9 announcement by the IASB regarding the issuance of a new Accounting Standard IFRS 19 — Subsidiaries without Public Accountability: Disclosures — which permits eligible subsidiaries to “provide reduced disclosures when applying recognition, measurement, and presentation requirements of IFRS Accounting Standards.”

The statement acknowledges that IFRS 19 is limited to entities that do not have public accountability at the end of their reporting period, but notes that financial statements that apply IFRS 19 may be included in SEC filings in certain situations. When that’s the case, the statement says IFRS 19 will necessitate additional disclosures to meet the needs of the intended audience. They point to the requirement in IFRS 19 to consider whether additional disclosures are necessary to provide an understanding of particular events or circumstances.

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.

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.

The statement concludes with a reminder that the Division of Corporation Finance and the Office of the Chief Accountant are “available for consultation,” including on the application of IFRS 19 in SEC filings.

– Meredith Ervine