IFRS 19 – Subsidiaries without Public Accountability: Disclosures

How subsidiaries benefit from streamlined reporting requirements

A standard that can simplify everyday corporate life

The field of international group accounting is currently gaining momentum. One reason for this is the growing realization that the full IFRS in their traditional form creates a reporting burden for certain entities within a group that is disproportionate to the actual information needs of the users.

The IFRS 19 standard, "Subsidiaries without Public Accountability: Disclosures," published by the International Accounting Standards Board (IASB) in May 2024, addresses precisely this issue. It allows qualified subsidiaries to maintain the full recognition and measurement requirements of IFRS while simultaneously preparing significantly reduced notes to the financial statements. For accounting managers in internationally operating groups, this standard offers considerable potential for simplifying reporting processes and system architectures.

What is changing specifically

IFRS 19 breaks with the previous principle that IFRS users must always fulfill the full disclosure requirements. The key change lies in the strict separation between substantive accounting rules (recognition, measurement, and presentation) and formal reporting requirements (notes to the financial statements):

• Approach, assessment and reporting: unchanged in accordance with the respective IFRS standards.
• Appendix information: IFRS 19 replaces the previous requirements with a compact, significantly reduced catalog.

The extent of the simplifications is substantial: Under IFRS 12 (Investments in other entities), disclosure requirements are reduced by up to 68%¹, and under IAS 16 (Property, Plant and Equipment) by up to 64%². Field tests show that the notes to the financial statements are on average 14% to 19% shorter³. The balance sheet, income statement, and cash flow statement remain unchanged in their basic structure.

In August 2025, the IASB also published a catch-up amendment standard that takes into account recent developments such as IFRS 18 (presentation in financial statements) and the Pillar Two rules under IAS 12 (minimum taxation).

External influencing factors: regulations, endorsements and national specificities

The implementation of IFRS 19 is influenced by several external factors:

• EU endorsement: Formal incorporation into European law is still pending. EFRAG issued an endorsement recommendation in September 2025. Application within the EU is only permitted after endorsement.
• National law (Germany): The German Commercial Code (HGB) continues to require companies to prepare separate financial statements in accordance with the HGB for tax and distribution purposes. While the exemption under Section 325 Paragraph 2a of the HGB allows for the preparation of IFRS 19 financial statements as disclosure statements, it does not exempt companies from the original HGB preparation requirement. This limits the advantage of a streamlined accounting system in Germany. The German Accounting Standards Committee (DRSC) recommends a corresponding amendment to the law.
• Mandatory initial application: The standard is mandatory for financial years beginning on or after January 1, 2027. Early adoption is permitted, provided it is disclosed in the notes to the financial statements.

Classification: IFRS 19 compared to existing alternatives

Previously, subsidiaries without a capital market orientation faced a fundamental dilemma in choosing their accounting basis. IFRS 19 improves the situation, but does not completely eliminate dual accounting for German entities.

For foreign subsidiaries IFRS 19 is reaching its full potential for German corporations: In many jurisdictions, parallel local accounting is no longer necessary, as IFRS 19 can be used as the sole basis for individual financial statements.

For German subsidiaries However, the German Commercial Code (HGB) individual financial statements remain mandatory for tax and distribution-related reasons. The IFRS 19 financial statements, which are disclosed exemptively pursuant to Section 325 Paragraph 2a of the HGB, merely serve as a supplementary disclosure and do not replace the HGB financial statements. Dual accounting thus remains structurally in place in Germany. A change in the law, as recommended by the German Accounting Standards Committee (DRSC), would be necessary to alter this situation.

In-depth technical analysis: Scope of application, transition and limitations

Scope of application

IFRS 19 is designed as a voluntary option. Its application requires three criteria to be met cumulatively:

• Subsidiaries as defined in IFRS 10 (including intermediate parent companies),
• no public accountability, i.e., no equity or debt securities on a public market and no fiduciary business model vis-à-vis a broad public.
• The ultimate parent company or an intermediate parent company prepares publicly available consolidated financial statements in accordance with full IFRS.

Banks, insurance companies, securities dealers, and investment funds are typically explicitly excluded. Furthermore, no relief is provided in three areas: segment reporting (IFRS 8), insurance contracts (IFRS 17), and earnings per share (IAS 33).

Transitional arrangements

Depending on the previous accounting basis, different transitional provisions apply:

• Previously local GAAP or IFRS SME users are considered first-time IFRS adopters and apply IFRS 1, but may limit themselves to the reduced disclosure requirements according to IFRS 19.
• Existing full IFRS users only need to adapt their notes structure to IFRS 19.
• Comparative information for the immediately preceding financial year is mandatory in both cases.

Practical limits and discretionary leeway

Despite the significant simplifications, there are areas that require careful consideration. The concept of "fiduciary capacity" is particularly open to interpretation in the insurance sector. Furthermore, management must assess on a case-by-case basis whether the reduced disclosures are sufficient to provide a fair presentation. If not, supplementary information is required.

Impact on financial statements, systems and reporting processes

IFRS 19 does not fundamentally change the structure of either the balance sheet or the income statement. The main effects are:

• Appendix (Notes): The size is significantly reduced. Field tests show an average reduction in appendix pages of 14% to 19%.
• Declaration of Conformity: The company must explicitly and unequivocally declare that it complies with IFRS by applying IFRS 19.
• Key figures and covenants: Since the approach and valuation remain identical to the full IFRS, there are no direct effects on key figures such as EBITDA or on existing credit clauses.
• Consolidation systems: Since there is no divergence between individual and consolidated financial statements in the valuation rules, data requirements and mapping logics in the consolidation systems (e.g. SAP Group Reporting) are simplified.
• ERP systems: Companies switching from local standards must implement the IFRS approach and measurement logic once in their ERP systems.

Recommendations for Accounting Managers

Analysis of the initial situation

The starting point is a structured eligibility screening of all subsidiaries of the group. The three criteria of the scope of application must be examined for each entity, and the current accounting basis must be documented. The next step involves considering the national framework of the respective jurisdiction, in particular distribution and tax accounting regulations.

Professional assessment

Based on the screening, a cost-benefit analysis must be conducted for each qualified entity. One-time implementation costs (particularly for those switching from local standards) are offset by ongoing savings in the preparation of the notes to the financial statements and in the group-wide reporting process. This analysis must also clarify the relationship to existing covenants and coordinate with the auditor regarding the materiality of the remaining disclosures.

Implementation strategy

Based on the assessment, concrete implementation steps must be defined:

• Revise the appendix templates and adapt them to the IFRS 19 disclosure requirements.
• Derive and prioritize system-related requirements for ERP and consolidation solutions.
• Early coordination with the auditor and, where necessary, with local authorities.
• For planned early adoption before 2027: Continuously monitor EU endorsement status.

Perspective: How the topic will develop further

In the coming years, IFRS 19 is expected to gain wider significance once formal EU endorsement is completed. For German corporations, the standard will initially be relevant primarily for foreign subsidiaries, as the obligation to comply with the German Commercial Code (HGB) remains in effect domestically. A potential amendment to the HGB, as recommended by the German Accounting Standards Committee (DRSC), could extend its scope to domestic entities in the future.

In parallel, increasing standardization in the consolidation environment (e.g., through SAP Group Reporting and SAP S/4HANA) enhances the technical possibilities for efficiently implementing IFRS 19. New requirements for transparency and data-driven reporting, for example in the context of ESG, will further shape this field.

And finally ...

IFRS 19 is a pragmatic and long-overdue standard that closes a real gap in the IFRS framework. It enables subsidiaries to prepare IFRS-compliant financial statements without having to bear the full disclosure burden of capital market reporting. Compliance with group accounting standards is maintained, the effort is reduced, and comparability within the group is ensured.

The positive market reaction from auditors and companies confirms the practical benefits. It is now crucial to begin structured preparations early in order to fully utilize the opportunities offered by the new standard from the 2027 financial year onwards.

Act now: INSIRE supports your IFRS 19 implementation

The introduction of IFRS 19 is not only a technical challenge, but also has a direct impact on your ERP and consolidation systems. Typical adjustments are required for the mapping logic in SAP Group Reporting, the notes templates in your financial statement cockpit, and the IFRS 1 first-time application logic for transitioning entities.

INSIRE accompanies you as a specialized consultant in the field Financial Consolidation and SAP S/4 transformation from initial eligibility checks to productive go-live in your consolidation system. Contact us if you would like to structure your IFRS 19 roadmap.

Bibliography

1 IASB, Effects Analysis: IFRS 19 Subsidiaries without Public Accountability: Disclosures, May 2024, available at: https://www.ifrs.org/content/dam/ifrs/publications/amendments/english/2024/ifrs19-effectsanalysis.pdf

² Ibid.

³ Ibid.