IFRS 1 First-time Adoption of International Financial Reporting Standards

IFRS 1 First-time Adoption of International Financial Reporting Standards

Scope An entity is required to apply IFRS 1 in: Its first IFRS financial statements; and Each interim financial report, if any, that it presents i.t.o. IAS 34 Interim Financial Reporting for part of the period covered by its first IFRS financial statements

What is a first-time Adopter A first-time adopter is an entity that, for the first time, makes an explicit and unreserved statement that its general purpose financial statements comply with IFRS. An entity may be a first-time adopter if, in the preceding year, it prepared IFRS financial statements for internal management use, as long as those IFRS financial statements were not and given to owners or external parties If a set of IFRS financial statements was, for any reason, given to an external party in the preceding year, then the entity will already be considered to be on IFRSs, and IFRS 1 does not apply.

What is a first-time Adopter (cont.) An entity can also be a first-time adopter if, in the preceding year, its published AFS stated: Compliance with some but not all IFRSs. Included only a reconciliation of selected figures from previous GAAP to IFRSs. However, an entity is not a first-time adopter if, in the preceding year, its published AFS states: Compliance with IFRSs even if the auditor's report contained a qualification with respect to conformity with IFRSs. Compliance with both previous GAAP and IFRSs.

Time to think Canucks Limited is a medium-sized company that has been steadily growing over the past couple of years. In 2005 when IFRS first became effective, the board decided to adopt IFRS as many of its shareholders were international investors that were unsure what local GAAP was all about. However, with the issue of IFRS for SMEs in 2009, the board realised that much of the complexity of IFRS could be avoided. Since the company had no public accountability, the company moved onto IFRS for SMEs. In 2014, the new CEO has convinced the board that the only way to accelerate growth is for the company to list. Accordingly, the company has decided to revert to IFRS in anticipation of its forthcoming listing.

Time to think The CEO has asked the following questions: 1. Can the company change back to IFRS? 2. Will it have to re-apply IFRS 1? 3. If IFRS 1 is not re-applied, how does it go back onto IFRS? 4. If we have a choice which would likely cost less to accomplish?

New guidance (amendment) There are 2 choices: 1. Re-apply IFRS 1 or; 2. Apply IFRSs retrospectively in accordance with IAS 8 Accounting Policies, Changes in Estimates and Errors as if the entity had never stopped applying IFRSs.

1.) Re-apply IFRS 1 If the company does choose to re-apply IFRS 1 the following disclosures are required: IFRS 1 must be applied in full! Including all the required IAS 1 disclosures. ALSO the reason it stopped applying IFRSs; and the reason it is resuming the application of IFRSs.

2.) Apply IFRSs retrospectively If the company chooses not to re-apply IFRS 1 the following disclosures are required: IAS 8 must be applied in full! Including all the required IAS 1 disclosures. ALSO The reasons for electing to apply IFRSs as if it had never stopped applying IFRSs must be explained.

Date of Transition Defined as the beginning of the earliest period for which an entity presents full comparative information under IFRS Important as this is the date at which an entity calculates all its IFRS changes

Let s say we have a year-end in 2013 2011 2012 2013 31-12-2011 31-12-2012 31-12-2013 Date of transition to IFRS Old GAAP reporting (Prior year reporting date) First reporting date (current year end) we decide to adopt IFRS. Opening SFP will also be restated. Restate this under IFRS First IFRS reporting with IFRS comparatives for 2012

MAIN PRINCIPLES

Opening IFRS Statement of financial position Present at least 3 statements of financial position Must publish recon of equity under old GAAP to IFRS at date of transition and to end of latest published period under old GAAP All IFRS adjustments processed at date of transition recorded in equity Where in equity??? Example: If chose revaluation for PPE

Accounting Policies Use IFRS effective on first reporting date I.e.: 31 December 2013 in earlier example Must use same policies for current and comparative financials: Can t use previous versions of IFRS for comparatives Disclose early adoption of IFRS that are not yet mandatory

General Provision Generally retrospective application Comparatives Opening IFRS BS

Key Other Requirements For first-time Adoption, IFRS1 requires you to take opening statement of financial position and: Recognise assets / liabilities required by IFRS Don t recognise assets / liabilities where IFRS does not permit Reclassify asset / liability / equity Measure all recognised assets / liabilities using IFRS Recognise differences in accounting policies (GAAP vs. IFRS) in RE / equity Comply with all presentation and disclosure requirements in IFRS

Recognise and Derecognise RECOGNISE DERECOGNISE Pension Liabilities Deferred tax assets & liabilities Finance lease assets & liabilities Provisions (legal or constructive) Derivative financial instruments Acquired intangible assets Internal development costs Provisions, if no present obligation General reserves as liabiltiies Deferred tax assets, if not probable Treasury shares as assets Intangible assets, not meeting criteria

Mandatory Exceptions Optional Exemptions

MANDATORY EXCEPTIONS Derecognition of financial assets and financial liabilities Hedge accounting Estimates Assets classified as held for sale and discontinued operations Government loans Classification of financial assets Embedded derivatives

Optional Exemptions The following exemptions are available: Business combinations Deemed cost Employee benefits Cumulative translation differences Compound financial instruments Subsidiaries, associates & joint ventures Designation of financial instruments Share-based payments Insurance contracts Decommissioning liabilities Leases Fair value of financial instruments at initial recognition Financial assets/intangible assets under IFRIC 12 Borrowing costs Hyperinflation Stripping costs