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IFRS 1, First-time Adoption of IFRS is a financial reporting standard under International Financial Reporting Standards (IFRSs) that stipulates the requirements for an entity that is preparing IFRS compliant financial statements for the first time. It only applies once, at the time of changeover, and is mandatory guidance on the adoption of IFRSs. Accordingly, it will be applicable for the vast majority of entities adopting IFRSs in Canada in 2011. The objective of IFRS 1 is to provide a consistent framework within which entities can start to apply IFRSs. Included in IFRS 1 is a requirement for retrospective (or retroactive) application of each IFRS. Otherwise stated, creating a starting point which assumes that IFRSs had always been followed. An entity is required to prepare and present an opening IFRS statement of financial position at the date of transition to IFRSs. This will be January 1, 2010 for Canadian companies with December 31 year ends that are adopting IFRSs on January 1, 2011 with one comparative period. Exemptions and Exceptions For many companies, full retrospective application of IFRSs will not be a simple task. Consider going back to the date of inception of an entity and restating the accounting records to comply with each and every IFRS from that date. Fortunately, the standard setters did not overlook the practical difficulties and included, in IFRS 1, relief through a series of exemptions from retrospective application. The exemptions refer to specific parts of specific standards where the costs of retrospective application were considered to outweigh the benefits. They include the ability to avoid restating all prior business combinations and an ability to restate the carrying amount of property to fair value on adoption of IFRSs. IFRS 1 also has several mandatory exceptions where retrospective application is prohibited. One example is the use of hindsight in accounting estimates on adoption of IFRSs. Disclosure As may be expected, disclosure is another important feature of IFRS 1 whereby a series of reconciliations must be prepared and disclosed in both the quarterly and annual financial statements. Don’t delay At first glance IFRS 1 can seem a hard read but do not avoid it. The standard relieves the preparer of the endless questions that would ultimately arise absent such first-time adoption rules. Even better news, there’s only one first-time and accordingly, one year in which IFRS 1 will apply to your entity. Preparers must understand the choices and requirements under IFRS 1 in order to effectively prepare for the changeover to IFRSs. Resources To help you gain a better understanding of IFRS 1, we provide complimentary access to IFRS 1, First-time Adoption Essentials an informative presentation from the 2009 CICA Financial Reporting and Accounting Conference. The presenters are Clair Grindley, CA, of Deloitte and Benoit Caron, CA, who is leading Canada Post’s transition to IFRSs. To further build on your understanding of IFRS 1, you may also want to read The Road to IFRS, a practical guide to IFRS 1 and first-time adoption from Grant Thornton. The focus of this guide is on the accounting aspects of first-time adoption. The guide is intended to assist companies and auditors in applying the challenging aspects of IFRS 1, and provides several examples of practical application. |
