Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
5 February 2026Bruce MackenzieIFRS Interpretations CommitteeColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Bruce,Tentative agenda decision – Assessment of a Specified Main Business Activityfor the purposes of the Separate Financial Statements of a Parent (IFRS 18)
The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditing,ethics and sustainability disclosures for professional accountants in Hong Kong. We aregrateful for the opportunity to provide you with our views on this tentative agendadecision (TAD).We appreciate the efforts of the IFRS Interpretations Committee (IC) in addressing theapplication of the requirements in IFRS 18 Presentation and Disclosure in FinancialStatements when assessing a specified main business activity for the purposes of theseparate financial statements of a parent. However, we have concerns regarding theanalysis in the TAD, particularly the following statements:
‘In those circumstances, concluding that investing in unconsolidated subsidiaries is nota main business activity for the parent would result in the parent not having any mainbusiness activity. The Committee observed that an outcome in which an entity has nomain business activity would be inconsistent with the IASB’s rationale underlying therequirements of the Standard.’We consider that these statements may inadvertently impose a default classificationoutcome, which could unduly restrict management’s ability to exercise judgement indetermining the entity’s main business activity. Our comments and recommendationsare as follows.Risk of creating a presumptionIFRS 18 does not specify whether all entities must have at least one main businessactivity, nor does it state that an entity with no main business activity would beinconsistent with the IASB’s rationale underlying the requirements of IFRS 18. TheIASB’s rationale, as referred to in the TAD, is also unclear.Without further clarification, the analysis in the TAD could be interpreted as creating apresumption that, in the absence of other substantive activities, investing inunconsolidated subsidiaries is automatically concluded as a main business activity forthe purposes of the parent’s separate financial statements. Based on this interpretation,the parent would classify income and expenses from its investments in unconsolidatedPage 2 of 3subsidiaries in the operating category of its statement of profit or loss. This mayinadvertently impose a default classification outcome. Under such an interpretation, anyparent whose sole activity is investing in unconsolidated subsidiaries wouldautomatically identify this as its main business activity, without considering the extentor nature of its activities in relation to those investments. Consequently, whether aparent is an active or a passive investor, the classification outcome would be the same.It is unclear whether this outcome reflects the IASB’s intended application of IFRS 18.In addition, the analysis may have wider implications for other fact patterns. It may implythat investing in unconsolidated subsidiaries can be identified as a main businessactivity only when the parent has no other business activities. As a result, a parent withmore than one business activity (for example, investing in investment properties andfinancial assets) may be precluded from identifying investing in unconsolidatedsubsidiaries as a main business activity. Income and expenses from those subsidiarieswould then be classified in the investing category in its statement of profit or loss. Suchoutcomes may not faithfully represent the parent’s business model and may underminethe comparability of the financial statements.Management’s judgement in assessing main business activityParagraph B33 of IFRS 18 emphasizes that the assessment of specified main businessactivities is a matter of fact, rather than mere assertion. Entities are required to applyjudgment and base the assessment on evidence. Given that IFRS AccountingStandards are principles-based, the application of judgement is critical to reflecting thespecific facts and circumstances of the entity. Relying on the statements quoted abovefrom the TAD as the primary basis for concluding that investing in unconsolidatedsubsidiaries constitutes a main business activity may unintentionally constrainmanagement’s ability to exercise judgement in making this assessment.In the fact pattern, the parent does not use operating performance metrics, nor does itprovide segmental information to its shareholders. Such circumstances, particularly inthe absence of the factors described in paragraphs B34-B36 of IFRS 18, highlight theimportance of applying judgement supported by relevant evidence, rather thandefaulting to a prescribed outcome.We also observe that the parent undertakes certain activities relating to its investmentsin subsidiaries, including making decisions on the management, acquisition anddisposal of subsidiaries and distributing returns to shareholders. Applying paragraphB33 of IFRS 18, management should exercise judgement to assess whether theseactivities, in relation to investments in unconsolidated subsidiaries, constitute a mainbusiness activity.RecommendationIn light of the above, we recommend that the IC adopt a more explicit approach in theanalysis by highlighting paragraph B33 of IFRS 18. Specifically,a) management should exercise judgement in determining whether investing inunconsolidated subsidiaries is a main business activity; andb) in the absence of the factors set out in paragraphs B34-B36 of IFRS 18,management should exercise judgement and consider other relevant factors.Relevant factors for the fact pattern could include the business model of the parent,the existence of a management team responsible for investment decisions, andwhether dividend income is the sole income stream of the parent.Page 3 of 3We also recommend that the IC clarify whether, based on facts and circumstances andthe application of management’s judgement, an entity could conclude that it has no mainbusiness activity. If such an outcome is considered unacceptable, the IC should explainthe rationale.Work undertaken by HKICPA in forming its views:
In response to this TAD, the HKICPA:
a)
issued an Invitation to Comment on the TAD on 9 December 2025 to its membersand other stakeholders;
b)
sought input from its Disclosure Initiative Advisory Panel, which mainly comprisestechnical and industry experts from accounting firms; andc)
developed its views through its Financial Reporting Standards Committee, havingreflected on its respondents’ views. The Committee comprises preparerrepresentatives from various industry sectors, regulators, as well as technical andindustry experts from small, medium and large accounting firms.If you have any questions regarding the matters raised in this letter, please contactKatherine Leung (katherineleung@hkicpa.org.hk), Associate Director of the StandardSetting Department.Sincerely,Cecilia KweiDirector of Standard Setting
Tentative agenda decision – Assessment of a Specified Main Business Activity for the purposes of the Separate Financial Statements of a Parent (IFRS 18)
下载原件Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
5 February 2026Bruce MackenzieIFRS Interpretations CommitteeColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Bruce,Tentative agenda decision – Assessment of a Specified Main Business Activityfor the purposes of the Separate Financial Statements of a Parent (IFRS 18)
The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditing,ethics and sustainability disclosures for professional accountants in Hong Kong. We aregrateful for the opportunity to provide you with our views on this tentative agendadecision (TAD).We appreciate the efforts of the IFRS Interpretations Committee (IC) in addressing theapplication of the requirements in IFRS 18 Presentation and Disclosure in FinancialStatements when assessing a specified main business activity for the purposes of theseparate financial statements of a parent. However, we have concerns regarding theanalysis in the TAD, particularly the following statements:
‘In those circumstances, concluding that investing in unconsolidated subsidiaries is nota main business activity for the parent would result in the parent not having any mainbusiness activity. The Committee observed that an outcome in which an entity has nomain business activity would be inconsistent with the IASB’s rationale underlying therequirements of the Standard.’We consider that these statements may inadvertently impose a default classificationoutcome, which could unduly restrict management’s ability to exercise judgement indetermining the entity’s main business activity. Our comments and recommendationsare as follows.Risk of creating a presumptionIFRS 18 does not specify whether all entities must have at least one main businessactivity, nor does it state that an entity with no main business activity would beinconsistent with the IASB’s rationale underlying the requirements of IFRS 18. TheIASB’s rationale, as referred to in the TAD, is also unclear.Without further clarification, the analysis in the TAD could be interpreted as creating apresumption that, in the absence of other substantive activities, investing inunconsolidated subsidiaries is automatically concluded as a main business activity forthe purposes of the parent’s separate financial statements. Based on this interpretation,the parent would classify income and expenses from its investments in unconsolidatedPage 2 of 3subsidiaries in the operating category of its statement of profit or loss. This mayinadvertently impose a default classification outcome. Under such an interpretation, anyparent whose sole activity is investing in unconsolidated subsidiaries wouldautomatically identify this as its main business activity, without considering the extentor nature of its activities in relation to those investments. Consequently, whether aparent is an active or a passive investor, the classification outcome would be the same.It is unclear whether this outcome reflects the IASB’s intended application of IFRS 18.In addition, the analysis may have wider implications for other fact patterns. It may implythat investing in unconsolidated subsidiaries can be identified as a main businessactivity only when the parent has no other business activities. As a result, a parent withmore than one business activity (for example, investing in investment properties andfinancial assets) may be precluded from identifying investing in unconsolidatedsubsidiaries as a main business activity. Income and expenses from those subsidiarieswould then be classified in the investing category in its statement of profit or loss. Suchoutcomes may not faithfully represent the parent’s business model and may underminethe comparability of the financial statements.Management’s judgement in assessing main business activityParagraph B33 of IFRS 18 emphasizes that the assessment of specified main businessactivities is a matter of fact, rather than mere assertion. Entities are required to applyjudgment and base the assessment on evidence. Given that IFRS AccountingStandards are principles-based, the application of judgement is critical to reflecting thespecific facts and circumstances of the entity. Relying on the statements quoted abovefrom the TAD as the primary basis for concluding that investing in unconsolidatedsubsidiaries constitutes a main business activity may unintentionally constrainmanagement’s ability to exercise judgement in making this assessment.In the fact pattern, the parent does not use operating performance metrics, nor does itprovide segmental information to its shareholders. Such circumstances, particularly inthe absence of the factors described in paragraphs B34-B36 of IFRS 18, highlight theimportance of applying judgement supported by relevant evidence, rather thandefaulting to a prescribed outcome.We also observe that the parent undertakes certain activities relating to its investmentsin subsidiaries, including making decisions on the management, acquisition anddisposal of subsidiaries and distributing returns to shareholders. Applying paragraphB33 of IFRS 18, management should exercise judgement to assess whether theseactivities, in relation to investments in unconsolidated subsidiaries, constitute a mainbusiness activity.RecommendationIn light of the above, we recommend that the IC adopt a more explicit approach in theanalysis by highlighting paragraph B33 of IFRS 18. Specifically,a) management should exercise judgement in determining whether investing inunconsolidated subsidiaries is a main business activity; andb) in the absence of the factors set out in paragraphs B34-B36 of IFRS 18,management should exercise judgement and consider other relevant factors.Relevant factors for the fact pattern could include the business model of the parent,the existence of a management team responsible for investment decisions, andwhether dividend income is the sole income stream of the parent.Page 3 of 3We also recommend that the IC clarify whether, based on facts and circumstances andthe application of management’s judgement, an entity could conclude that it has no mainbusiness activity. If such an outcome is considered unacceptable, the IC should explainthe rationale.Work undertaken by HKICPA in forming its views:
In response to this TAD, the HKICPA:
a)
issued an Invitation to Comment on the TAD on 9 December 2025 to its membersand other stakeholders;
b)
sought input from its Disclosure Initiative Advisory Panel, which mainly comprisestechnical and industry experts from accounting firms; andc)
developed its views through its Financial Reporting Standards Committee, havingreflected on its respondents’ views. The Committee comprises preparerrepresentatives from various industry sectors, regulators, as well as technical andindustry experts from small, medium and large accounting firms.If you have any questions regarding the matters raised in this letter, please contactKatherine Leung (katherineleung@hkicpa.org.hk), Associate Director of the StandardSetting Department.Sincerely,Cecilia KweiDirector of Standard Setting