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BASIS FOR CONCLUSIONS ON IFRS 1 INTRODUCTION

BASIS FOR CONCLUSIONS ON IFRS 1 INTRODUCTION

BASIS FOR CONCLUSIONS ON IFRS 1 INTRODUCTION

This Basis for Conclusions accompanies, but is not part of, IFRS 1.In this Basis for Conclusions the terminology has not been amended to reflect the changes made by IAS 1 Presentation of Financial Statements (as revised in 2007).
This Basis for Conclusions has not been revised to reflect the restructuring of IFRS 1 in November 2008, but cross-references have been updated.

BASIS FOR CONCLUSIONS ON IFRS 1 INTRODUCTION

Introduction – BC1 This Basis for Conclusions summarises the International Accounting StandardsBoard’s considerations in reaching the conclusions in IFRS 1 First-time Adoption of International Financial Reporting Standards. Individual Board members gave greater weight to some factors than to others.

BASIS FOR CONCLUSIONS ON IFRS 1 INTRODUCTION

BC2 – SIC-8 First-time Application of IASs as the Primary Basis of Accounting, issued in 1998,dealt with matters that arose when an entity first adopted IASs. In 2001, the Board began a project to review SIC-8. In July 2002, the Board published ED1 First-time Application of International Financial Reporting Standards, with a comment deadline of 31 October 2002. The Board received 83 comment letters on ED 1. IFRS 1 was issued by the Board in June 2003.

BASIS FOR CONCLUSIONS ON IFRS 1 INTRODUCTION

BC2A – IFRS 1 replaced SIC-8. The Board developed the IFRS to address concerns that:
(a) some aspects of SIC-8’s requirement for full retrospective application caused costs that exceeded the likely benefits for users of financial statements. Moreover, although SIC-8 did not require retrospective application when this would be impracticable, it did not explain whether a first-time adopter should interpret impracticability as a high hurdle or a low hurdle and it did not specify any particular treatment in cases of impracticability.
(b) SIC-8 could require a first-time adopter to apply two different versions of a standard if a new version were introduced during the periods covered by its first financial statements prepared under IASs and the new version prohibited retrospective application.
(c) SIC-8 did not state clearly whether a first-time adopter should use hindsight in applying recognition and measurement decisions retrospectively.
(d) there was some doubt about how SIC-8 interacted with specific transitional provisions in individual standards.

BASIS FOR CONCLUSIONS ON IFRS 1 INTRODUCTION

BC2B – Like SIC-8, IFRS 1 requires retrospective application in most areas. Unlike SIC-8, it:

(a) includes targeted exemptions to avoid costs that would be likely to exceed the benefits to users of financial statements, and a small number of other exceptions for practical reasons.

(b) clarifies that an entity applies the latest version of IFRSs.
(c) clarifies how a first-time adopter’s estimates in accordance with IFRSs relate to the estimates it made for the same date in accordance with previous GAAP.
(d) specifies that the transitional provisions in other IFRSs do not apply to a first-time adopter.
(e) requires enhanced disclosure about the transition to IFRSs.

BASIS FOR CONCLUSIONS ON IFRS 1 INTRODUCTION

BC3 –  The project took on added significance because of the requirement for listed European Union companies to adopt IFRSs in their consolidated financial statements from 2005. Several other countries announced that they would permit or require entities to adopt IFRSs in the next few years. Nevertheless, the Board’s aim in developing the IFRS was to find solutions that would be appropriate for any entity, in any part of the world, regardless of whether adoption occurs in 2005 or at a different time.

BASIS FOR CONCLUSIONS ON IFRS 1 INTRODUCTION

Restructuring of the IFRS

BC3A – Since it was issued in 2003, IFRS 1 has been amended many times to accommodate first-time adoption requirements resulting from new or amended IFRSs. Because of the way IFRS 1 was structured, those amendments made the IFRS more complex and less clear. As more amendments become necessary, this problem will become worse.

BASIS FOR CONCLUSIONS ON IFRS 1 INTRODUCTION

BC3B – As part of its improvements project in 2007, therefore, the Board proposed to change the structure of IFRS 1 without amending its substance. Respondents to the exposure draft published in October 2007 supported the restructuring. The revised structure of the IFRS issued in November 2008 is easier for the reader to understand and is better designed to accommodate future changes. The focus of the restructuring was to move to appendices all specific exemptions and exceptions from the requirements of IFRSs. Exemptions are categorised into business combinations, exemptions and short-term exemptions. Exemptions are applicable to all first-time adopters regardless of their date of transition to IFRSs. Short-term exemptions are those exemptions applicable to users for a short time. Once those exemptions have become out of date, they will be deleted.

BASIS FOR CONCLUSIONS ON IFRS 1 INTRODUCTION

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