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IFRS 1 First Time Adoption of International Financial Reporting Standards

IFRS 1
First Time Adoption of International
Financial Reporting Standards

Piron Consulting (P) Ltd 1


Contents

1. Objective ................................................................................................................................................... 4
1.1Definitions ............................................................................................................................................ 4
2. Scope ......................................................................................................................................................... 5
2.1 Applicable ............................................................................................................................................ 5
2.2 Out of scope ........................................................................................................................................ 6
3. Opening IFRS Statement of Financial Position .......................................................................................... 7
4. Accounting Policies ................................................................................................................................... 8
5. Recognition ............................................................................................................................................... 9
6. Measurement .......................................................................................................................................... 10
7. Mandatory Exceptions to Retrospective Application of IFRS ................................................................. 10
7.1 Estimates ........................................................................................................................................... 10
7.2 Derecognition of financial assets and financial liabilities ................................................................ 13
7.3 Hedge Accounting ............................................................................................................................. 13
7.4 Non Controlling Interest ................................................................................................................... 13
8 Optional Exemptions from requirements of certain IFRSs ...................................................................... 14
8.1 Exemption for Business Combination .............................................................................................. 14
8.1.1 Treatment of Goodwill ....................................................................................................... 16
8.1.2 Foreign Currency ................................................................................................................ 17
8.1.3 Subsidiaries not previously consolidated ........................................................................... 18
8.1.4 Associates and Joint Ventures ............................................................................................ 20
8.2 Fair value or revaluation as deemed cost ......................................................................................... 21
8.3 Investments in subsidiaries, jointly controlled entities and associates ............................................ 24
8.4 Assets and liabilities of subsidiaries, associates and joint ventures ................................................. 25


8.5 Share‐based payment transactions .................................................................................................. 26
8.6 Insurance Contacts ............................................................................................................................ 26

8.7 Leases ................................................................................................................................................ 26
8.8 Employee Benefits ............................................................................................................................ 26
8.9 Compound financial instruments ...................................................................................................... 27
8.10 Designation of previously recognized financial instruments .......................................................... 30
8.11 Borrowing costs .............................................................................................................................. 30
8.12 Cumulative Translation Difference ................................................................................................. 31
8.13 Decommissioning Liabilities included in cost of property, plant and equipment .......................... 31
8.14 Financial Assets or Intangible Assets accounted in accordance with IFRIC 12 Service Concession
Agreements ............................................................................................................................................. 32
9. IFRS 1 interaction with other standards ................................................................................................. 32
9.1 Events after reporting date IAS 10 .................................................................................................... 32
9.2 IAS 12 Income Taxes ......................................................................................................................... 33
9.3 IAS 16 Property, Plant and Equipment .............................................................................................. 33
9.4 IAS 18 Revenue ................................................................................................................................. 33
10. Presentation and Disclosure ................................................................................................................. 34
10.1 Comparitive information ................................................................................................................. 34
10.2 Non‐IFRS comparative information and historical summaries ....................................................... 34
10.3 Explanation of transition to IFRSs ................................................................................................... 35
10.4 Use of fair value as deemed cost .................................................................................................... 35
10.5 Interim Financial Reports ................................................................................................................ 36
11. How to check that all disclosure requirements relating to this standard has been incorporated (For
each disclosure mark – Yes, No or Not Applicable) .................................................................................... 41
12. Leyland Queries..................................................................................................................................... 44

1. Objective

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:

(a) Is transparent and comparable,
(b) Provides a suitable starting point for accounting in accordance with (IFRSs); and
(c) Can be generated at a cost that does not exceed the benefits.

The underlying principle of IFRS 1 is retrospective application of those standards in force at the
'reporting date' of entities' first IFRS financial statements.

The transitional rules of other standards do not apply to the first time adopters except where
specified in IFRS 1.

1.1Definitions

Date of transition to IFRS: The beginning of the earliest period for which an entity presents full
comparative information under IFRS in its first IFRS financial statements

First IFRS financial statements: The first annual financial statements in which an entity adopts
International Financial Reporting Standards (IFRSs), by an explicit and unreserved statement of
compliance with IFRSs.

First IFRS reporting period: The latest reporting period covered by an entity’s first IFRS financial
statements.

Opening IFRS statement of financial position: An entity’s statement of financial position at the
date of transition to IFRSs.

The diagram shows how for an entity with a December year end, these terms apply:



Last financial statements under previous GAAP

Comparative period First IFRS reporting period

First IFRS financial statements

1 Jan 2007 1 Jan 2008 1 Jan 2009 31 Dec 2009

Date of transition to IFRS Beginning of first IFRS Reporting date
Opening IFRS Balance Sheet reporting period

2. Scope
2.1 Applicable

An entity shall apply this IFRS in:
(a) Its first IFRS financial statements; and
(b) Each interim financial report, if any, that it presents in accordance with IAS 34
Interim Financial Reporting for part of the period covered by its first IFRS financial
statements.

An entity’s first IFRS financial statements are the first annual financial statements in which the
entity adopts IFRSs, by an explicit and unreserved statement

2.1.1 The IFRS contains a simple test that gives an unambiguous answer: an entity has adopted
IFRSs if, and only if, its financial statements contain an explicit and unreserved statement of
compliance with IFRSs

2.1.2 If an entity’s financial statements in previous years contained that statement, any
material disclosed or undisclosed departures from IFRSs are errors. The entity applies IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors in correcting them.



There may be some instances where an entity has more than one historical reporting GAAP due
to, for example, regulations in that country.

Example ‐ Entity has multiple previous GAAPs

For an entity that has historically been preparing financial statements using multiple GAAPs,
none of which are IFRS, what is its previous GAAP for the purpose of its first set of IFRS financial
statements?

There are factors that should be assessed when determining previous GAAP.
There is a policy choice, so long as it is clearly disclosed which GAAP is being used as the
previous GAAP.
Examples of factors that should be assessed include:
a. Where the majority of users are located and which GAAP they have been using,
b. What is triggering the use of IFRS and whether it is a mandatory or voluntary transition.

2.2 Out of scope

The IFRS does not apply:

• To changes in accounting policies made by an entity that already applies IFRSs which are
dealt in accordance with IAS 8, and transitional requirements in other IFRS’s.

• If an entity has previously presented financial statements with an explicit and
unreserved statement of compliance with IFRS, even if they were accompanied with an
qualified audit report.

Example – Entity A prepares its financial statements in accordance with previous GAAP, but will
be preparing in accordance with IFRS for year ending 31 Dec 2007.

Entity A has stated in its previous GAAP statements that they are prepared in accordance with
IFRS, except for IAS 32 and IAS 39.

The statement that entity complied with some and not all IFRS’s is not an explicit and
unreserved statement of compliance with IFRS. Thus, entity A’s financial statements for 31 Dec
2007, will be its first IFRS financial statement.



Example

Entity B prepares financial statements that contain an explicit and unreserved statement of
compliance with IFRS.
The auditors' report on the financial statements for the year ended 31 December 20X6 was
qualified, because of a disagreement over the application of IAS 32.

Entity B's management has agreed to change the accounting for the complex financial
instrument for the year ending 31 December 20X7.

IFRS 1 is not applied when an entity previously prepared financial statements that contained an
explicit statement of compliance with IFRS, but for which the auditors' report was qualified.
Therefore, entity B's financial statements for the year ending 31 December 20X7 will not be its
first IFRS financial statements.

3. Opening IFRS Statement of Financial Position

An entity shall prepare and present an opening IFRS statement of financial position at the date
of transition to IFRSs. This is the starting point for its accounting in accordance with IFRSs.

Example – Providing more than one year of comparative information

New law requires Alpha to prepare its financial statements in accordance with IFS for year
ending 31 Dec 2007. Alpha A’s shares are also registered with its national regulator, which
requires two years of comparative financial statements.

IFRS requires one year of comparative information to be prepared in accordance with IFRS to be
presented, although an entity is permitted to present additional comparative information.

Transition date is the beginning of the earliest period for which full comparative information is
given. Thus, in this case, it is 1 January 2005.


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