IFRS 1

FIRST-TIME ADOPTION OF IFRS

Presented By : Mr. Feysel Takele (ACCA) and Mr. Tilahun Girma(ACCA)

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 Objective
 Understand IFRS 1 and key dates for IFRS
 Identify who is considered as First Time Adopter
 Understand changes needed to implement IFRS 1
 Practice the modifications in preparing the Opening
St. of Financial positions
 Understand the optional exemptions and mandatory
exceptions
 Discuss the challenges of IFRS adoption
Definition of First-time
Adoption (FTA)
 First set of financial statements in which the entity
makes an “explicit and unreserved statement of
compliance with IFRSs”:

“…in conformity with International Financial

Reporting Standards…”

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Objective of IFRS 1
• To ensure that an organization’s first IFRS financial
statements contain high-quality information that:
• is transparent for users and comparable over all
periods presented
• provides a suitable starting point for accounting
under IFRS
• can be generated at a cost that does not exceed
the benefits to users
Scope of IFRS 1
 IFRS 1 must be applied by an organization in
 Its first IFRS financial statements; and

 Each interim financial report, if any, that it

presents under IAS 34 Interim Financial Reporting
for part of the period covered by its first IFRS
financial statements.
Key date

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Who is First Time Adopter?
A first time adopter could be:
a) an entity that presented its most recent previous
statements:
(i) in accordance with national requirements- not
consistent with IFRSs in all or some respects;
(ii) in conformity with IFRSs but no explicit and unreserved
statement that they complied with IFRSs;
(iii) containing an explicit statement of compliance with
some, but not all, IFRSs;
(v) in accordance with national requirements, with a
reconciliation of some amounts to the amounts
determined in accordance with IFRSs
Who is First Time Adopter?
b) prepared financial statements in accordance with
IFRSs for internal use only
c) prepared a reporting package in accordance with
IFRSs for consolidation
d) did not present financial statements for previous
periods
Who is not First time a
dopter?
(a) stop presenting financial statements in accordance with
national requirements, having previously presented them
with an explicit and unreserved statement of compliance
with IFRSs;
(b) presented financial statements in the previous year in
accordance with national requirements and those financial
statements contained an explicit and unreserved statement
of compliance with IFRSs; or
Who is not First time
adopter?
(c) presented financial statements in the previous year that
contained an explicit and unreserved statement of
compliance with IFRSs, even if the auditors qualified
their audit report on those financial statements.
(d) IFRS 1 also does not apply to changes in accounting
policies made by an organization that already applies
IFRS – IAS 8

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IFRS 1 involves
 IFRS 1 requires the retrospective application of
IFRSs as if it always applies IFRS.
 Two Key Steps:
 Select accounting policies based on IFRSs in force at
end of reporting period of FTA:
 Prepare at least two years financial statements, and
opening balance sheet for the earliest year, using
those policies

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Selecting Initial IFRS Accounting Policies
  Criteria for selecting accounting policies:
 Relevance

 Faithfull presentations

 any accounting policy decisions depend on

circumstances – not “free choice”
 But some are pure “free choice”

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Recognition and measurement
► The opening statement of financial position should
be presented using the same accounting policies that
are used for all periods presented in the first-time
IFRS financial statements.
► These accounting policies should be consistent
with the IFRS standards that are effective at the
end of the first IFRS reporting period.
Recognition and measurement
► Assets, liabilities and equity reported should be
measured using retrospective application of the
relevant IFRS standards.
► However, there are some mandatory and some
voluntary exceptions to this general rule. These
are discussed later.
► To the extent that the opening statement of financial
position measured under IFRS differ from those
measured under GAAP, the adjustments should be
recognized directly in retained earnings.
 Recognition and measurement
 IFRS 1 focuses on requirements for:
 Presentation of the opening statement of financial position
(opening balance sheet) at the date of transition
 Comparative information as required

 Reconciliations between previous GAAP and IFRS, for

example with respect to financial position, financial
performance, and cash flows
 Other requirements and disclosures

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 Recognition and measurement
 In the opening balance sheet (adjustments required to
move from US GAAP to IFRSs), an organization must
 recognize all assets and liabilities whose recognition is
required by IFRS
 Not recognize items as assets or liabilities if IFRS do not
permit such recognition
 reclassify items that it recognized 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
 apply IFRS in measuring all recognized assets and
liabilities 16
Exceptions to Restatement
 There are some exceptions to the requirement to
restate comparative data using IFRSs:
 Some exceptions are optional

  Some exceptions are mandatory

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Optional Exceptions
 Business Combinations:
 May keep old GAAP. Need not restate:
 Initial measurement of goodwill

 Goodwill written off against equity

 Carrying amounts of acquired assets and liabilities

 However, entity may elect to restate old business

combinations back to any starting date
 Must test goodwill for impairment at opening balance
sheet date
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Optional Exceptions
 Property, plant and equipment:
 May measure at FV. This becomes ‘deemed cost’
going forward
 Also, revaluations under old GAAP can be deemed
cost
 Employee benefits:
 Can eliminate any deferred actuarial gains and losses
under old GAAP even if the entity will continue to use
the corridor approach in future

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Optional Exceptions
 Cumulative foreign currency translation
adjustments:
 Any amount deferred in equity under old GAAP can be
eliminated (adjust retained earnings)
 If eliminated, gain or loss on future disposal of the
foreign operation reflects only translation adjustments
arising

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Optional Exceptions
 Entity may designate financial instrument as
available-for-sale or fair-value-option
 IAS 39 allows designation only on date instrument
is acquired
 Need not apply IFRS 2 to share-based payments
issued

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Optional Exceptions
 Full-cost oil and gas assets
 Retrospective application of IFRSs for oil and gas
assets is not required. Carrying amount under old
GAAP = deemed cost
 Determining whether an arrangement contains a
lease (IFRIC 4)
 Determination under old GAAP need not change even
if at a date different from what IFRIC 4 would require

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Optional Exceptions
 In general IAS 1 requires comparative information
for all amounts in financial statements and in the
notes
 Exemptions for some comparative information for
financial instruments (including IFRS 7), insurance
contracts, extractive industries, and historical
summaries

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Mandatory Exceptions
 Derecognition of financial assets and liabilities: Do not
“undo” past derecognitions based on new information.
 Hedge accounting: No new designation of hedge accounting
for hedges if not treated as hedges under old GAAP
 Estimates: Do not change previous estimates unless there
was an error
 non-controlling interests
 classification and measurement of financial assets
 impairment of financial assets
 embedded derivatives
 government loans
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Presentation and disclosure
 Certain comparative financial statements are
required. The first-time financial statements should
include:
 Three statements of financial position.

 Two statements of comprehensive income and two

statements of net income, if presented separately.
 Two statements of cash flows.

 Two statements of changes in equity.

 Related notes.
Presentation and disclosure
 Reconciliations
1. Of equity at date of transition and at end of latest
annual local GAAP statements
2. Of total comprehensive income under old GAAP
to amounts under IFRSs for latest annual local
GAAP statements
 Newly recognized impairment losses
 Material adjustments from old cash flow statement
to IAS 7 cash flow statement

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Challenges in IFRS adoption
What challenges do you think you will face
while adopting IFRS
 Valuation of collateral

 Separating the cost of land & building

 Impairment computation

 Pricing of loans and advances

 Debt and equity instruments