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BASIS FOR CONCLUSIONS ON IFRS 1 SCOPE

BASIS FOR CONCLUSIONS ON IFRS 1 SCOPE

BASIS FOR CONCLUSIONS ON IFRS 1 SCOPE

SCOPE The IFRS applies to an entity that presents its first IFRS financial statements (a first-time adopter). Some suggested that an entity should not be regarded as a first-time adopter if its previous financial statements contained an explicit statement of compliance with IFRSs, except for specified (and explicit) departures. They argued that an explicit statement of compliance establishes that an entity regards IFRSs as its basis of accounting, even if the entity does not comply with every requirement of every IFRS. Some regarded this argument as especially strong if an entity previously complied with all recognition and measurement requirements of IFRSs, but did not give some required disclosures—for example, segmental disclosures that IAS 14 Segment Reporting2 requires or the explicit statement of compliance with IFRSs that IAS 1 Presentation of Financial Statements requires.

BASIS FOR CONCLUSIONS ON IFRS 1 SCOPE

To implement that approach, it would be necessary to establish how many departures are needed—and how serious they must be—before an entity would conclude that it has not adopted IFRSs. In the Board’s view, this would lead to complexity and uncertainty. Also, an entity should not be regarded as having adopted IFRSs if it does not give all disclosures required by IFRSs, because that approach would diminish the importance of disclosures and undermine efforts to promote full compliance with IFRSs. Therefore, the IFRS contains a simple test that gives an unambiguous answer: an entity has adopted IFRSs if, and only if, its financial statements contain an explicit and unreserved statement of compliance with IFRSs (paragraph 3 of the IFRS).

BASIS FOR CONCLUSIONS ON IFRS 1 SCOPE

If an entity’s financial statements in previous years contained that statement, any material disclosed or undisclosed departures from IFRSs are errors. The entity applies IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors in correcting them.

BASIS FOR CONCLUSIONS ON IFRS 1 SCOPE

Repeated application of IFRS 1

In Annual Improvements 2009–2011 Cycle (issued in May 2012) the Board addressed a request to clarify whether an entity may apply IFRS 1:
(a) if the entity meets the criteria for applying IFRS 1 and has applied IFRS 1 in a previous reporting period; or
(b) if the entity meets the criteria for applying IFRS 1 and has applied IFRSs in a previous reporting period when IFRS 1 did not exist.

BASIS FOR CONCLUSIONS ON IFRS 1 SCOPE

For example, an entity may have applied IFRS 1 in a previous reporting period to meet listing requirements in a foreign jurisdiction. The entity then delists and no longer presents financial statements in accordance with IFRSs. In a subsequent reporting period, the reporting requirements in the entity’s local jurisdiction may change from national GAAP to IFRSs. Consequently, the entity is again required to present its financial statements in accordance with IFRSs.

BASIS FOR CONCLUSIONS ON IFRS 1 SCOPE

The Board noted that the scope of IFRS 1 focuses on whether an entity’s financial statements are its first IFRS financial statements. If an entity’s financial statements meet the definition of ‘first IFRS financial statements’, the entity is required to apply IFRS 1. However, use of the term ‘first’ raises the question whether IFRS 1 can be applied more than once.

BASIS FOR CONCLUSIONS ON IFRS 1 SCOPE
In the June 2011 exposure draft the Board proposed to clarify that an entity is required to apply IFRS 1 when the entity’s most recent previous annual financial statements do not contain an explicit and unreserved statement of compliance with IFRSs, even if the entity has applied IFRS 1 in a reporting period before the period reported in the most recent previous annual financial statements. However, in the light of respondents’ comments on the June 2011 exposure draft, the Board decided that an entity that meets the criteria for applying IFRS 1 and that has applied IFRSs in a previous reporting period (regardless of whether it used IFRS 1 or SIC-8 First-Time Application of IASs, if either, when previously adopting) may choose to apply IFRS 1 when it re-adopts IFRSs. The Board decided that the entity should be allowed, rather than required, to apply IFRS 1 because, as explained in paragraph IN5 of IFRS 1, IFRS 1 grants limited exemptions from
some requirements of IFRSs on the assumption that the cost of complying with some IFRSs would be likely to exceed the benefits to users of financial statements. However, the costs of applying IFRSs in full might not exceed the benefits of doing so for an entity that had previously applied IFRSs. Consequently, the Board concluded that an entity returning to IFRSs might determine that the benefits of applying IFRSs as if it had continued to do so without interruption would exceed the costs of preparing such information, and that an entity should not be prohibited from following that approach. In
applying such an approach, an entity should apply IFRSs retrospectively in accordance with IAS 8 Accounting Policies, Changes in Estimates and Errors as if the entity had never stopped applying IFRSs. The Board noted that hindsight is not
applied by an entity in preparing IFRS financial statements, whether that entity is applying IFRS 1, or whether that entity applies IFRSs retrospectively as if the entity had never stopped applying them in accordance with IAS 8. The Board
noted that paragraphs 14–17 of IFRS 1 and paragraph 53 of IAS 8 provide guidance in this regard.

BASIS FOR CONCLUSIONS ON IFRS 1 SCOPE

The Board also noted that, in accordance with paragraph 2 of IFRS 1, an entity that has never applied IFRSs in the past would continue to be required to apply IFRS 1 in its first IFRS financial statements.

The Board also decided that the entity shall disclose the reason why it stopped applying IFRSs and the reason why it is resuming reporting in accordance with IFRSs. The Board thinks that this disclosure requirement provides users with
useful information and would discourage the intentional omission of the statement of compliance with IFRSs solely to allow an entity to take advantage of the exemptions in IFRS 1. The Board also decided that an entity that does not elect to apply IFRS 1 shall explain the reasons why it has elected to apply IFRSs as if it had never stopped applying them. The Board believes that this disclosure ensures that useful information will be provided to users.

BASIS FOR CONCLUSIONS ON IFRS 1 SCOPE

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