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IFRS 1 First time Adoption Of IFRS

IFRS 1 First time Adoption Of IFRS

IFRS 1 First time Adoption Of IFRS : 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.

IFRS 1 First time Adoption Of IFRS

IFRS 1 First time Adoption Of IFRS: 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.

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.

IFRS 1 First time Adoption Of IFRS

IFRS 1 First time Adoption Of IFRS : 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.

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.

IFRS 1 First time Adoption Of IFRS

IFRS 1 First time Adoption Of IFRS : 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.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.

The Board noted that the scope of IFRS 1 focuses on whether an entity’s financial statements are its first IFRS financial statements (a term defined in Appendix A). If an entity’s financial statements meet the definition of ‘first IFRS financial statements’. However, use of the term ‘first’ raises the question whether
IFRS 1 can be applied more than once.

IFRS 1 First time Adoption Of IFRS

IFRS 1 First time Adoption Of IFRS : 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.

In developing recognition and measurement requirements for an entity’s opening IFRS balance sheet, the Board referred to the objective of financial statements, as set out in the Framework for the Preparation and Presentation of Financial Statements. The Framework3 states that the objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.

IFRS 1 First time Adoption Of IFRS

IFRS 1 First time Adoption Of IFRS : The Framework identifies four qualitative characteristics that make information in financial statements useful to users. In summary, the information should be:
(a) readily understandable by users.
(b) relevant to the decision-making needs of users.
(c) reliable, in other words financial statements should:
(i) represent faithfully the transactions and other events they either purport to represent or could reasonably be expected to represent;
(ii) represent transactions and other events in accordance with their substance and economic reality and not merely their legal form;
(iii) be neutral, that is to say, free from bias;
(iv) contend with the uncertainties that inevitably surround many events and circumstances by the exercise of prudence; and
(v) be complete within the bounds of materiality and cost.
(d) comparable with information provided by the entity in its financial statements through time and with information provided in the financial statements of other entities.

IFRS 1 First time Adoption Of IFRS

IFRS 1 First time Adoption Of IFRS : In general, the transitional provisions in other IFRSs do not apply to a first-time adopter (paragraph 9 of the IFRS). Some of these transitional provisions require or permit an entity already reporting in accordance with IFRSs to apply a new requirement prospectively. These provisions generally reflect a conclusion that one or both of the following factors are present in a particular case:
(a) Retrospective application may be difficult or involve costs exceeding the likely benefits. The IFRS permits prospective application in specific cases where this could occur (paragraphs BC30–BC73).
(b) There is a danger of abuse if retrospective application would require judgements by management about past conditions after the outcome of a particular transaction is already known. The IFRS prohibits retrospective application in some areas where this could occur
(paragraphs BC74–BC84).

Some have suggested three further reasons for permitting or requiring prospective application in some cases:
(a) to alleviate unforeseen consequences of a new IFRS if another party uses financial statements to monitor compliance with a contract or agreement. However, in the Board’s view, it is up to the parties to an agreement to determine whether to insulate the agreement from the effects of a future IFRS and, if not, how they might renegotiate it so that it reflects changes in the underlying financial condition rather than
changes in reporting (paragraph 215 of the Preface to International Financial Reporting Standards).
(b) to give a first-time adopter the same accounting options as an entity that already applies IFRSs. However, permitting prospective application by a first-time adopter would conflict with the Board’s primary objective of comparability within an entity’s first IFRS financial statements (paragraph BC10). Therefore, the Board did not adopt a general policy of giving first-time adopters the same accounting options of prospective application that existing IFRSs give to entities that already apply IFRSs. Paragraphs BC20–BC23 discuss one specific case, namely derecognition of financial assets and financial liabilities.
(c) to avoid difficult distinctions between changes in estimates and changes in the basis for making estimates. However, a first-time adopter need not make this distinction in preparing its opening IFRS balance sheet, so the IFRS does not include exemptions on these grounds. If an entity becomes aware of errors made under previous GAAP, the IFRS requires it to disclose the correction of the errors

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