First time adoption IFRS Introduction – It is not only about IFRS 1 when an entity prepares its first IFRS financial statements, but also about some other IFRS because IFRS 1 references to these IFRS standards. Therefore, entities will need to consider the following standards in their first time adoption review process:
- IFRS 1 – First Time Adoption of IFRS;
- IAS 1 – Presentation of Financial Statements;
- IAS 8 – Accounting Policies.
IFRS 1 sets out detailed rules that entities must follow when adopting IFRS for the first time. The standard also sets out a number of exemptions that may be applied when adopting IFRS.
If an entity wishes to apply either of these exemptions a full audit trail must be produced to outline the assessment and sufficient evidence must be provided to evidence that the application of the exemption is appropriate.
The main issues that entities need to be aware of when adopting IFRS 1 are:
- A full audit trail for all adjustments from Local/previous GAAP to IFRS will be required;
- Additional reconciliations and disclosures will need to be produced;
- A significant amount of analysis and documented evidence will be required even when proving ‘nil’ adjustments;
- Key issues need to be flagged early and discussed with auditors to ensure there is timely agreement on accounting treatment;
- The length of disclosures within the accounts as a result of IFRS will be increased;
- Early engagement with Audit Committees is essential to ensure they are aware of the process and the impact of the change to IFRS; and
- Significant investments in terms of time and resources are likely to be required to ensure that all issues with IFRS are resolved, especially for more complex accounts.
The motivation (or objective) of IFRS 1 is very noble: First time adoption IFRS Introduction
The objective of this IFRS is to ensure that an entity’s first IFRS financial statements, and its interim financial reports for part of the period covered by those financial statements, contain high quality information that:
- is transparent for users and comparable over all periods presented;
- provides a suitable starting point for accounting in accordance with International Financial Reporting Standards (IFRSs); and
- can be generated at a cost that does not exceed the benefits.
- IFRS 1 does not apply to entities already reporting under IFRSs First time adoption IFRS Introduction
- IFRS 1 applies to the first set of financial statements that contain an explicit and unreserved statement of compliance with IFRSs
- IFRS 1 applies to any interim financial statements for a period covered by those first financial statements that are prepared under IFRSs.
- Select IFRS accounting policies using either: First time adoption IFRS Introduction
- IFRSs that are currently effective; or First time adoption IFRS Introduction
- One or more IFRSs that are not yet effective, if those new IFRS permit early adoption.
- Recognise/derecognise assets and liabilities where necessary so as to comply with IFRSs
- Reclassify items that the entity recognised under previous accounting framework as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity under IFRS
- Re-measure all assets and liabilities recognised under IFRSs. First time adoption IFRS Introduction
IFRS 1 has great practical significance for sectors and countries that are expected to adopt the standards in the near future. It applies to an entity that presents its first IFRS financial statements and sets out ground rules an entity needs to follow when it adopts the standards for the first time.
An entity’s first IFRS financial statements are those that are the first annual financial statements in which the entity adopts IFRS by an explicit and unreserved statement of compliance. The standards give examples of situations where financial statements do and do not qualify as ‘first IFRS financial statements’.
An entity adopting the standards for the first time prepares an opening balance sheet on the date of transition. This balance sheet serves as the starting point for the entity’s accounting under IFRS. The revised IFRS 1 issued at 1 January 2009 requires an entity to prepare and present an opening IFRS statement of financial position at the date of transition to IFRS.
However, disclosure of a reconciliation of equity reported under previous Generally Accepted Accounting Principles (GAAP) to equity under IFRS is required, as is a reconciliation of profit or loss for the last annual period reported under the previous GAAP, to profit or loss under IFRS for the same period.
In preparing the opening FRS balance sheet, the following rules should be followed, except in cases where IFRS 1 grants targeted exemptions and prohibits retrospective application:
- assets and liabilities should be recognised where required under IFRS
- assets and liabilities should be derecognised where required under IFRS
- items that were recognised under previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability, or component of equity under IFRS should be reclassified, and
- all recognised assets and liabilities should be measured according to principles outlined in IFRS.
A first-time adopter should consistently apply the same accounting policies throughout the periods presented in its first IFRS financial statements, and these accounting policies should be based on the latest version of the IFRS effective at the reporting date. IFRS 1 states that the transitional provisions in other IFRSs do not apply to first-time adopters.
The first IFRS statements, accounting policies and disclosures are discussed in more detail in the following sections:
- First IFRS financial statements – recognition and measurement
- Accounting Policies to First IFRS Financial statements
- Disclosures in First IFRS Financial statements
First time adoption IFRS Introduction
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First time adoption IFRS Introduction First time adoption IFRS Introduction First time adoption IFRS Introduction First time adoption IFRS Introduction First time adoption IFRS Introduction First time adoption IFRS Introduction