IFRS in Practice — #1: IFRS 1
First-time Adoption of International Financial Reporting Standards
What happens when a company prepares its IFRS financial statements for the first time?
That’s where IFRS 1 comes in.
The objective is to ensure that an entity’s first IFRS financial statements provide high-quality information that:
• is transparent and comparable;
• provides an appropriate starting point for accounting under IFRS; and
• can be generated at a cost that does not exceed the benefits.
The basic principle
A first-time adopter generally prepares an opening IFRS statement of financial position at the date of transition to IFRS.
In doing so, the company generally needs to:
✓ recognize assets and liabilities required by IFRS;
✓ remove items that IFRS does not permit as assets or liabilities;
✓ reclassify items where IFRS requires a different classification; and
✓ measure recognized assets and liabilities according to IFRS.
IFRS 1 also contains mandatory exceptions and optional exemptions from full retrospective application.
Why does it matter?
Moving to IFRS isn’t simply changing the presentation of financial statements.
The transition can affect:
equity, asset and liability values, accounting policies, disclosures and reported financial performance.
The company also needs to explain how the transition from its previous accounting framework affected its reported financial position, performance and cash flows.
In short: IFRS 1 creates the bridge between a company’s previous accounting framework and its first IFRS financial statements.
Next in the series: IFRS 2 — Share-based Payment.
#IFRS #IFRS1 #Accounting #FinancialReporting #Finance #Accountants
