IFRS 1 Summary: First-time Adoption of IFRS

This is the summary of IFRS 1: First-time Adoption of International Financial Reporting Standard. The summary here is structure the same to full IFRS. It starts from Objective, Scope, Recommendation, and Measurement, and ended with Presentation and Disclosure.

The summary of IFRS 1 First-time Adoption of International Financial Reporting Standard is just for your information and quick check only. In case you want to apply to your company, the full standard is recommended.

Hers is the summary,

1) The objective of IFRS 1

The main objective of IFRS 1 is to ensure that the entity’s financial statements that firstly adopted IFRS contain high quality of information for the benefit of users of Financial Statement.

It tries to make sure that transitional cost does not exceed the benefit of adoption along with with the guidance on how and where to start its first-time adoption.

2) Scope of IFRS 1

Here is the summary of the scope of IFRS 1 ( First Time Adoption)

This standard applies to:

  • The entity that firstly prepares its Financial Statements
  • Transitional from another accounting standard to IFRS
  • Interim Financial Reporting for part of the period covered by its first IFRS
  • First set of financial statements that contain an explicit and unreserved statement of compliance with IFRSs.

This Standard does not apply to:

  • This standard is not applied to entities already reporting under IFRSs

Related: [Updated] List of IFRS and IAS 2016

3) Recognition and Measurement of IFRS 1

IFRS 1 Require the following points to be implemented when an entity wants to make the transition from current GAAP to IFRS. Here is the important requirement of IFRS 1:

  • Entity requires to prepare and present the opening balance of balance sheet items at the transitional date. This is the first thing that entity need to do in their transitional works. Such presentation is quite an importance for users to understand how the effect of transitional from GAAP to IFRS.
  • It is required by IFRS 1 that entity shall use the same accounting policies for opening balance items and all other items in the period. The entity should use the same accounting policies for opening balance and these accounting policies are to be used consistently over the next periods. All of those accounting policies must be comply with IFRS at the time of transition.
  • Transitional from one IFRS to others IFRS is not applicable for this standard. For example, when the entity’s Financial Statements are already used IFRS. And some IFRS require changing. Then, the application of IFRS 1 is not applicable to such a situation.
  • The Transitional of GAAP to IFRS should be used the last release of IFRS.
  • The entity should apply IFRS to measure all items in Financial Statements. That means all items in Financial Statements are required to use IFRS to measures.
  • Recognize all items of assets and liabilities that permit by IFRS. The entity should recognize all assets and liabilities that permit by IFRS.
  • Derecognize all items that are not permitted. The entity should also derecognize all items of assets and liabilities if those items are not permitted per IFRS.
  • The entity should perform adjustment of the effect between GAAP and IFRS is go to retain earning. During the transitional, there are some items going to be effective by the transition from GAAP to IFRS. All of the effects are required by IFRS 1 to be recognized in retain earning.

Mandatory Exemption for Retrospective:

In general, the application of transitional from current GAAP to IFRS require that opening balance need to be retrospective in Financial Statement.

However, because the retrospective costs are high for some areas; therefore, IFRS 1 provides guidance on what areas must be retrospective and what areas that you can decide to apply or not.

The exemption classifies into two classifications based on their sensitivities: First of is Mandatory Exemption and the second one is Optional Exemption.

Current Mandatory Exemption has four areas:

  • Accounting Estimate
  • The De-recognition of Financial Assets and Financial Liabilities
  • Hedge Accounting
  • Non-Controlling Interests.

and, Optional Exemption is listed below:

Optional Exemption:

  • Exception for Business combinations
  • Share-based payment transactions
  • Insurance contracts
  • Deemed cost
  • Leases
  • Cumulative translation differences
  • Investments in subsidiaries, jointly controlled entities and associates
  • Assets and liabilities of subsidiaries, associates and joint ventures
  • Compound financial instruments
  • Designation of previously recognized financial instruments
  • Fair value measurement of financial assets/liabilities at initial recognition
  • Decommissioning liabilities included in the cost of property, plant, and equipment
  • Financial assets or intangible assets accounted for in accordance with IFRIC 12 Service Concession Arrangements
  • Borrowing costs
  • Transfers of assets from customers accounted for in accordance with IFRIC 18 Transfers of Assets from Customers
  • Extinguishing financial liabilities with equity instruments
  • Joint arrangement
  • Severe hyperinflation
  • Stripping Costs in the Production Phase of a Surface Mine

4) Presentation and Disclosure of IFRS 1

The following are the disclosure requirement for IFRS 1:

a) For comprehensive information entity should prepare:

  • Three Statements of Financial Position
  • Two Statements of Profit and Loss
  • Two Statements of Statement of Cash Flow
  • Two Statements of Change in Equity
  • Noted to Financial Statements
  • All Statements are required comparative information

b) For a reconciliation of equity reported under previous accounting framework to equity under IFRSs:

  • At the date of transition to IFRSs
  • At the end of the latest period presented in the entity’s most recent annual financial statements under previous GAAP.

c) For a reconciliation of total comprehensive income reported under previous accounting:

  • The framework to total comprehensive income under IFRSs for the entity’s most recent annual
  • Financial statements under previous accounting framework

d) Interim financial reports Error under previous GAAP and Additional disclosure should clearly stated and present in the report.

If you have any comment related to IFRS 1, please drop it here so that we can discuss.