In this article we will discuss about the first-time adoption of IFRSs by a company.
A company is regarded as a first-time adopter of IFRSs if, for the first time, it makes an explicit and unreserved statement that its general purpose financial statements comply with IFRSs. IFRS 1 First-time Adoption of International Financial Reporting Standards prescribes the accounting and disclosure required for first-time adopters.
A first-time adopter company will prepare its first IFRS financial statements using the IFRSs that are in effect at the time it first adopts IFRSs. It will use those standards to prepare IFRS financial statements for that year and (at least) the preceding year and will restate the opening balance sheet of the earliest period presented in conformity with IFRSs.
To illustrate: if an entity adopts IFRSs for the first-time in its annual financial statements for the year ended 31st March 2008, it will do as follows:
1. Select accounting policies. The entity should select its accounting policies based on the IFRSs in force at 31st March 2008.
2. Choose its IFRS reporting periods. The entity should prepare financial statements for at least 2008 and 2007, and restate retrospectively the opening balance sheet (beginning of the first period for which full comparative financial statements are presented) by applying the IFRSs in force at 31st March 2008.
(a) Since IAS 1 requires that at least one year of comparative prior-period financial information be presented, the opening balance sheet will be 1 April 2007 if not earlier.
(b) If a 31st March 2008 adopter reports selected financial data (but not full financial statements) on an IFRS basis for periods prior to 2007, in addition to full financial statements for 2007 and 2008 that does not change the fact that its opening IFRS balance sheet is as of 1st April 2007.
Certain adjustments will be required to move from the entity’s previous GAAP to IFRSs.
These may include the following:
(i) The entity should eliminate previous GAAP asses and liabilities from the opening balance sheet if they do not qualify for recognition under IFRSs.
(ii) Conversely, the entity should recognise all assets and liabilities required to be recognised by IFRSs even if they are never recognised under previous GAAP.
(iii) The entity should reclassify previous GAAP opening balance sheet items into the appropriate IFRS classification.
(iv) The general measurement principle is to apply IFRSs in measuring all recognised assets and liabilities. Therefore, if an entity adopts IFRSs for the first time in its annual financial statements for the year ended 31st December 2008, in general it would use the measurement principles in IFRSs in force at 31st March 2008.
(v) Adjustments required to move from previous GAAP to IFRSs at the time of first-time adoption should be recognised directly in retained earnings or in another appropriate category of equity at the date of transition to IFRSs.