The International Accounting Standards Board has proposed a narrow amendment to the IFRS for SMEs Accounting Standard that would extend consolidation relief to certain intermediate parent entities.
The change is intended to reduce reporting costs for eligible SMEs where an investment entity parent, or ultimate parent, does not prepare consolidated financial statements.
Key development
The proposed amendment would create an exception from consolidation for an intermediate parent entity that applies the IFRS for SMEs Accounting Standard, where its parent or ultimate parent is an investment entity and does not prepare consolidated accounts.
The IASB is seeking feedback on the proposal by 9 September 2026. Subject to approval, the amendment would apply for annual reporting periods beginning on or after 1 January 2027, aligned with the third edition of the IFRS for SMEs Accounting Standard. Early application would be permitted for entities that adopt the third edition early.
Impact on financial reporting and compliance
Reduced consolidation burden for qualifying SMEs
Eligible intermediate parent entities may no longer need to prepare consolidated financial statements solely because they have subsidiaries. This could lower preparation costs, reduce technical complexity, and simplify reporting timetables.
Closer alignment with full IFRS principles
The proposal would give certain SMEs a form of relief comparable to that available under full IFRS Accounting Standards. This may improve consistency for groups that include both full IFRS and IFRS for SMEs reporting entities.
Potential effect on group reporting assessments
Entities will need to reassess whether they qualify for the proposed exemption. The status of the parent or ultimate parent as an investment entity, and whether it prepares consolidated financial statements, will be central to the analysis.
Audit and assurance implications
Auditors may need to obtain evidence supporting the exemption, including the ownership structure, the accounting basis used by the parent or ultimate parent, and whether the investment entity criteria are met.
Practical issues for firms and clients
- Determining eligibility: Management will need to confirm whether the parent or ultimate parent qualifies as an investment entity and whether it prepares consolidated financial statements.
- Documentation requirements: Entities should retain clear evidence supporting the use of the exemption, particularly where ownership structures are complex.
- Transition planning: Firms should identify affected clients before the expected effective date of 1 January 2027.
- Systems and reporting processes: Entities that currently prepare consolidation schedules may need to revise reporting workflows, templates, and internal controls.
- Stakeholder communication: Lenders, investors, regulators, or minority shareholders may still request consolidated information even where the accounting standard no longer requires it.
- Early adoption decisions: Entities planning early adoption of the third edition of the IFRS for SMEs Accounting Standard should assess whether early use of the proposed relief would be beneficial.
Conclusion and action points
The proposed amendment is narrow but potentially useful for SMEs within investment entity structures. Accounting firms should review client group structures, identify entities that may benefit from the relief, and consider whether to submit comments before the 9 September 2026 deadline.
Clients potentially affected should begin assessing eligibility, documenting their conclusions, and evaluating whether the change could reduce future reporting effort without compromising the information needs of key stakeholders.
Source: IFRS, 12 May 2026.