First Time Adoption of IFRS

In our previous articles, we explained What is IFRS and the Difference between IFRS Conversion and IFRS Conversion. And in this article well be guiding you with how to apply IFRS for the first time. IFRS 1, First Time Adoption of IFRS (International Financial Reporting Standards), is the guidance that is applied during the preparation of a companys first time IFRS based statements. IFRS 1 was created to help companies easily convert to IFRS and provides practical accommodations intended to make first time adoption cost-effective.

What does IFRS 1 require?

The key principle of IFRS 1 is Full Retrospective application of all IFRS Standards that are effective as of the closing balance sheet or the reporting date of the first IFRS financial Statements. IFRS 1 requires companies to 1. Identify the first IFRS Financial Statements 2. Prepare an opening balance sheet at the date of transition to IFRS 3. Select accounting policies that comply with IFRS and apply those policies retrospectively to all the periods presented in the first IFRS Statements 4. Consider whether to apply any of the optional exemptions from retrospective application 5. Apply the 4 Mandatory exceptions from retrospective application 6. Make extensive disclosures to explain the Transition to IFRS There are currently 16 optional exemptions to ease the burden of retrospective application. These exemptions are available to all first time adopters, regardless of their date of transition. Additionally, the Standard provides for Short-Term exemptions which are temporarily available to users and often address transition issues related to new standards. There are 4 mandatory exceptions for which retrospective application is not permitted.

The Opening IFRS Balance Sheet

The Opening IFRS Balance Sheet is the standing point for all subsequent accounting under IFRS and is prepared at the date of transition, which is beginning of the earliest period for which full comparative information is presented in accordance with IFRS. IFRS 1 requires that the opening IFRS Balance Sheet should:1. Include all of the Assets and Liabilities that IFRS requires 2. Exclude any IFRS or Liability that IFRS does not permit 3. Classify all Assets and Liabilities that IFRs does not permit 4. Measure all items in accordance with IFRs 5. Be prepared and presented with an entities first IFRS Financial Statements These General Principles are to be followed unless any one of the Optional Exemptions or Mandatory Exemptions does not require or permit recognition, classification and measurement in line with the above.

Consideration of Choices under IFRS

A number of IFRS Standards allow companies to choose between alternate policies. Companies should select carefully the Choices of Accounting Policies to be applied to the opening balance sheet and have a full understanding of the implications to current and future periods. The Companies should take this opportunity to evaluate their IFRS Accounting Policies with a Clean Sheet of Paper mindset