IFRS 1: fIRST TIME ADOPTION OF IFRS

OVERVIEW


In 2003, the International Accounting Standard Board (IASB) issued the IFRS 1 - First time adoption of International Financial Reporting Standards. Its revised version was issued earlier in 2008. The issuance of this IFRS 1 is to ensure that the entity while preparing the financial statements shall comply with the requirement of the reporting standards issued by IASB and should contain the high quality information that is:


=> The financial statements should be transparent for its users from one period to another means there should be a consistency of information from one period to other.

=> It should provide a suitable starting point for accounting under the international accounting standards

=> The financial statements shall be generated at a cost that does not exceeds its benefits to the users.

Key Takeaway Points


=> IFRS 1 – First time adoption of international financial reporting standards set out the requirements which must be followed by an entity adopts the international accounting standards when preparing the financial statements.


=> An entity shall prepare the financial statements under the new applicable accounting standards from one period to other and such comparative information shall also be updated as per the new accounting standards.


=> IFRS 1 grants certain exemptions to entities where the cost of the financials and information is limited under the new accounting standards than the financial statements prepared under the previous local accounting standards or previous local GAAP.

FEATURES OF IFRS 1


The main features of IFRS 1 which is worth to note are as follows:


=> An entity’s first IFRS financial statements are those in which the entity adopts international accounting standards while preparing it and also makes an explicit unreserved statement of compliance with the required accounting standards.


=> The first IFRS reporting period is defined as the reporting period which is covered under the first IFRS financial statements.


=> In case of transition of financial statement from one accounting standards to new accounting standards, it should be the earliest date for which an entity presents the comparative informational in its first IFRS financial statements. Most of the financial statements give the one year period and also gives the comparative information for the previous year. Therefore, the transition period shall be two years before the end of the first IFRS reporting period.


When adopting the international accounting standards an entity shall prepare the opening IFRS statement of financial position, as at the date of the transition. This is also called the starting point of an accounting in accordance with the international accounting standards. The opening IFRS statement of financial position shall comply with the international standards of accounting and should contains the following things:


=> It should recognize all the assets and liabilities which is required to be recognized by an international accounting standards. However, an entity shall not recognize those assets and liabilities which are not permitted under the accounting standards.


=> Reclassify the assets and liabilities which were classified previously under different standards or GAAP but not its required to be presented and reclassification under new accounting standards.


=> An entity shall apply the international accounting standards in the recognition of all assets and liabilities.


=> An entity shall apply the same accounting policies from one to other and in all comparative periods. This mean that those policies which are adopted in the first IFRS financial statements then it shall be applied consistently and should not be changed unless required by IFRS or other accounting standards.


=> An entity while preparing the first IFRS financial statements shall incorporate the following reconciliations in its financial statements:


=> A reconciliation of the equity which was reported under the previous accounting standards or local GAAP to the new international accounting standards.


=> A reconciliation of the total comprehensive income reported under the previous local accounting standards or local GAAP to the new total comprehensive income figure required to be reported under the new accounting standards. Total comprehensive income mean all the items of profit or loss together with other gains or losses and also revaluation gains and losses.


=> IFRS 1 grants certain exemptions to entities in case where the cost of the preparation of the financials under the new accounting standards exceeds the benefits of the financial statements prepared under the previous local accounting standards or local GAAP.