Accounting Policies to First IFRS FS – An entity must use the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first IFRS financial statements1. Those accounting policies must comply with each IFRSs effective at the end of its first IFRS reporting period, unless there is a mandatory exception to retrospective application or an optional exemption from the requirements of IFRSs.
Note that:
- An entity may apply a new IFRS that is not yet mandatory if that IFRSs permits early application.
- The transitional provisions in IFRSs do not apply to a first-time adopter’s transition to IFRSs.
Mandatory Exceptions to Retrospective Application and Optional Exemptions from the Requirements of IFRSs
[IFRS 1, para IN5]
Mandatory exceptions prohibit the retrospective application of IFRSs in some areas, particularly where retrospective application could involve the use of hindsight. Optional exemptions grant relief from the requirements of IFRSs in specified areas where the cost of complying with IFRSs would likely exceed the benefits to users of financial statements.
The following table provides a summary of mandatory exceptions and optional exemptions.
Mandatory exemptions |
Optional exemptions |
IFRS 1 prohibits retrospective application in relation to the following:
For example, an entity is prohibited from applying hindsight to estimates in accordance with IFRSs at the date of transition to IFRSs (or at the end of a comparative period presented in its fi st IFRS financial statements). Accounting Policies to First IFRS FS Accounting Policies to First IFRS FS Accounting Policies to First IFRS FS
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IFRS 1 does not permit these to be applied by analogy to other items. An entity may elect to use one or more of the following exemptions, which provide specific relief, on adoption of IFRSs:
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MANDATORY EXCEPTION
Mandatory Exception to Retrospective Application |
Implications |
ESTIMATES [IFRS 1, 14, IFRS 1 16 – 17] |
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An entity is prohibited from applying hindsight to estimates in accordance with IFRSs at the date of transition to IFRSs (or at the end of a comparative period presented in its first IFRS financial statements). Therefore, these estimates must:
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For example, for an entity with a calendar year end that presents only one comparative period and has adopted IFRSs for 20X3 with a transition date of January 1, 20X2, this means that:
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DERECOGNITION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES [IFRS 1 B2 – B3] | |
A first-time adopter must apply the derecognition requirements in IAS 39 (or IFRS 9 if adopted) prospectively for transactions occurring on or after the date of transition. |
If a first-time adopter derecognized non-derivative financial assets or non-derivative financial liabilities in accordance with previous GAAP as a result of a transaction that occurred before the date of transition, it cannot recognize those assets and liabilities in accordance with IFRSs (unless they qualify for recognition as a result of a later transaction or event). |
Despite this mandatory exception, an entity may choose to apply the derecognition requirements in IAS 39 (or IFRS 9 if adopted) retrospectively from a designated date, provided that the information needed to apply IAS 39 (or IFRS 9 if adopted) to financial assets and financial liabilities derecognized as a result of past transactions was obtained at the time of initially accounting for those transactions. |
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HEDGE ACCOUNTING [IFRS 1 B4 – B6, IG60] | |
Transactions entered into before the date of transition to IFRSs are prohibited from being retrospectively designated as hedges. Accounting Policies to First IFRS FS Accounting Policies to First IFRS FS Accounting Policies to First IFRS FS Accounting Policies to First IFRS FS Accounting Policies to First IFRS FS Accounting Policies to First IFRS FS |
If, before the date of transition to IFRSs, an entity had designated a transaction as a hedge, but the hedge does not meet the conditions for hedge accounting in IAS 39, the entity must apply the requirements of IAS 39 to discontinue hedge accounting. Therefore, the designation and documentation of a hedge relationship must be completed on or before the date of transition to IFRSs if the hedge relationship is to qualify for hedge accounting from that date. Hedge accounting can be applied prospectively only from the date that the hedge relationship is fully designated and documented. Note that:
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NON-CONTROLLING INTERESTS [IFRS 1 B7] Accounting Policies to First IFRS FS | |
A first-time adopter must apply the following requirements in IFRS 10 prospectively from the date of transition to IFRSs:
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Changes in accounting policies during first year of IFRS Accounting Policies to First IFRS FS
If, between the date of an entity’s interim financial report (prepared in accordance with IAS 34 Interim Financial Reporting) and the issue of its first annual IFRS financial statements, and entity changes accounting policies and/or adopts exemptions:
- The requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors do not apply
- The reconciliation between IFRSs and previous GAAP has to be updated.
Accounting Policies to First IFRS FS
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