IFRS 1 First-time Adoption of International
Financial Reporting Standard
1
The objectives related to the development of international
accounting
standards
IAS(International
Accounting
Standards) / IFRS (International Financial Reporting
Standards):

Improve transparency
statements;
and
comparability
of
financial

Allow comparison of companies from different countries;

Facilitate market listing of companies on the exchanges
worldwide;

Obtain and restore investor confidence;

Provide a primary basis of accounting to countries devoid of
it.
2
The choice of standards IAS / IFRS is the result of two
major decisions:

The recommendation of the IOSCO (International
Organization of Securities Commissions);

The choice of the European Union.
The IOSCO recommended in May 2000 to all markets
authorities in the world to accept the use of standards
IAS / IFRS for emissions and quotations made by
transnational issuers in their market.
3
Then, the European Commission has pronounced in June 2000
for the promotion of the use of the accounting framework of
the IASB within the European Union.
For this, the European Commission:

Introduced a regulation mandating the IAS / IFRS standards
in 2005;

Has started a process of modernization of European
directives;

Set up a Community mechanism of adoption and a
framework to ensure strict implementation of standards.
4
The IASB developed the IFRS 1 approved in 2003 and entered
into force starting at 01.01.2004.
An enterprise which applying IAS/IFRS for the first time must
comply with each IAS/IFRS and current interpretation at the
time of this first time application.
IFRS 1 replaces SIC-8: First-time Application of IASs as the
Primary Basis of Accounting.
5
The purpose of the standard is to ensure that the first IFRS
financial statements of an entity and its interim financial
reports contain high quality information, which:



are transparent for users and comparable over all periods
presented;
provide a suitable starting point for accounting under IFRS;
can be implemented at a cost that does not exceed the
benefits of users
6
Eventually, IFRS 1 is expected to compare:


the data contained in the financial statements prepared
under IFRS by a company applying for the first time,
with the financial statements of different companies
applying for the first time at a given date.
Because the current figures and those provided by way
of a comparison will be based on the same set of
standards at the time of the first application of IAS/IFRS.
7
An entity applies IFRS 1 in:


its first IFRS financial statements;
each interim financial report to be submitted if necessary in
accordance with IAS 34 Interim Financial Reporting relating
to a part of the period covered by its first IFRS financial
statements.
8
In general, IFRS 1 requires:


that entity applies each IFRS effective at the date of
transition (closing or end of period) to its first IFRS
financial statements;
the obligatory establishment of an opening IFRS
balance sheet (starting point for accounting according
to IFRS) with comparative information of prior year
restated.
9
Facts
An entity A presented its financial statements under its previous GAAP annually as at
December 31 each year. A decided to adopt IFRS as of December 31, 2005, and to
present one-year comparative information for the year 2004.

Required
When should A prepare its opening IFRS balance sheet?

Solution
The beginning of the earliest period for which A should present full comparative
information would be January 1, 2004. The opening IFRS balance sheet that the
entity would need to prepare under IFRS 1 would be as of January 1, 2004.

If A decided to present two-year comparative information, then the beginning of the
earliest period for which the entity should present full comparative information
would be January 1, 2003 and the date of opening IFRS balance sheet would be as
of January 1, 2003.
10
In its first opening IFRS balance sheet, an entity must:

recognizes all assets and liabilities which are
required by IFRS;

does not enter items as assets or liabilities if IFRS do
not permit such recognition;

reclassifies items that it recognized depending on
previous accounting standards;

applies IFRS to measure all recognized assets and
liabilities.
11
Facts
An entity B presented its financial statements under the national GAAP until
2004. It adopted IFRS from 2005 and it must prepare an opening IFRS
balance sheet as at January 1, 2004. In preparing the IFRS opening
balance sheet B noted:
• Under its previous GAAP, it had deferred advertising costs of
$1,000,000 and had classified proposed dividends of $500,000 as a
current liability.
• It had not made a provision for warranty of $200,000 in the financial
statements presented under previous GAAP since the concept of
“constructive obligation” was not recognized under its previous GAAP.

Required
The entity B on the treatment of all the above items under IFRS 1.

12
Solution
In order to prepare the opening IFRS balance sheet at January 1, 2004, B
would need to make these adjustments to its balance sheet at December
31, 2003, presented under its previous GAAP:

• (a) IAS 38 does not allow advertising costs to be deferred whereas B’s
previous GAAP allowed this treatment. Thus, $1,000,000 of such
deferred costs should be derecognized (expensed) under IFRS.
• (b) IAS 37 requires recognition of a provision for warranty but B’s
previous GAAP did not allow a similar treatment. Thus, a provision for
warranty of $200,000 should be recognized under IFRS.
• (c) IAS 10 does not allow proposed dividends to be recognized as a
liability; instead, under the latest revision to IAS 10, they should be
disclosed in footnotes. B’s previous GAAP allowed proposed dividends
to be treated as a current liability. Therefore, proposed dividends of
$500,000 should be disclosed in footnotes.
13
The standard establishes two categories of exceptions to
the principle wherein the first opening IFRS balance
sheet of an entity must be conform to each IFRS;


Exemptions to some of other IFRS;
The prohibition of retrospective application of some
measures of other IFRS.
14

Business Combinations (IFRS 3);

Fair value or revaluation as deemed cost
( IAS 16, 40 and 38);

Benefits of personnel (IAS 19);

Cumulative translation differences (IAS 21);

Compound financial instruments (IAS 32);

Assets and liabilities of subsidiaries, associates
and joint ventures (IAS 39).
15
 Derecognition
of financial assets and
liabilities;
 Hedge
accounting;
 Estimates.
16
The standard provides no exemption to the
measures for the presentation and
disclosure requirements in other IFRSs:
 Comparative
 Explanation
transition;
 Use
information;
and
reconciliation
of
IFRS
of fair value as deemed cost;
 Interim
financial reports.
17
Comparative information:
A first-time adopter should present at least one year’s
worth of comparative information.

Explanation and reconciliation of IFRS transition:
The entity shall explain the impact of the transition from
previous GAAP to IFRS on its financial position, its
financial performance and published cash flows.
In order to comply with the requirement, reconciliation of
equity and profit and loss as reported under previous
GAAP to IFRS should be included in the entity’s first
IFRS financial statements.

18
Use of fair value as deemed cost:
If in its first opening balance sheet under IFRS, an entity uses fair
value as deemed cost of a tangible asset, an investment property
or an intangible asset, the first IFRS financial statements of the
entity must state for each line item in the opening IFRS balance
sheet: the aggregate of those fair values and the aggregate
adjustment to the carrying amounts reported under previous
GAAP.

Interim financial reports:
If an entity presents an interim financial report under IAS 34- Interim
Financial Reporting for a part of the period covered by its first
IFRS financial statements, in addition to disclosures made under
IAS 34, the first-time adopter should also present a reconciliation
of the equity and profit and loss under previous GAAP for the
comparable interim period to its equity and profit and loss under
IFRS.

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