IFRS 1

IFRS-1 (R) First-time adoption of
international financial reporting
standards

Introduction
OBJECTIVES
The webinar aims to-
 Provide an overview of IFRS 1
 Discuss the mandatory exceptions to IFRS 1
 Summarize the optional exemptions to IFRS 1

2 IFRS 1: First-time adoption of international
© 2010 KNAV P.A. All rights reserved
financial reporting standards

Overview
OBJECTIVE & SCOPE
 Transparency for users and comparability over all periods presented;

 Provides a suitable starting point for accounting under IFRS; and

 Can be generated at a cost that does not exceed the benefits to users.

Entities are required to apply IFRS 1 in their first IFRS financial statements and in
each interim financial report, if any, prepared in accordance with IAS 34 Interim
Financial Reporting for part of the period covered by those first IFRS financial
statements.
An entity’s first IFRS financial statements are the first annual financial statements in
which it adopts IFRSs by including an explicit and unreserved statement of
compliance with IFRSs.


Overview
IMPLEMENTATION
 Opening IFRS balance sheet at the date of transition. Opening balance sheet
prepared in accordance with IFRSs effective at the end of reporting period.
 The entity recognizes all assets and liabilities in accordance with the requirements
of the IFRSs and derecognizes assets and liabilities that do not qualify for
recognition under IFRS.
 All adjustments above are adjusted to opening retained earning (date of
transition).
 Estimates on the date of transition under IFRS should be consistent with
estimates made for the same date under previous GAAP.
 An entity’s first IFRS financial statements include at the least
 Three statement of financial position including one at the date of the transition
 two statements of comprehensive income,
 two income statements (if presented),
 two statements of cash flows, and
 two statements of changes in equity.
 Four mandatory exception and more than 16 optional exemption.


Overview
PRESENTATION & DISCLOSURE REQUIREMENT
 Complete compliance with IAS 1 Presentation of Financial Statements
requirements

 Explanation of the transition to IFRS by providing reconciliations as at the
date of transition and for the periods covered by the financial statements-
equity reconciliations and comprehensive income (Profit) reconciliations.

 Interim reporting

 Comparative financial statements


Overview
IFRS 1 IMPLEMENTATION ILLUSTRATED
 First-time adopter has optional exemption from retrospective application

April 1, 2009 Mar 31, 2010 Mar 31, 2011
Balance Sheet Balance Sheet Balance Sheet
Equity reconciliation* Equity reconciliation*

20X1 20X2
Comprehensive Income Comprehensive Income
Income Statement Income Statement
Cash flow statement Cash flow statement
Changes in equity Changes in equity
Profit reconciliation* Profit reconciliation*

* Reconciliation equity and comprehensive income or profit/loss under previous GAAP to equity and comprehensive income
respectively reported under IFRS


Overview
TRANSITION CHALLENGES

GAAP differences
 Revenue recognition
 Fair value measurement liasion
 Financial instruments
 Business combinations
 Share based compensation
 Property, plant and equipment

Significant investments in systems, processes and people

Regulatory amendments to Companies Act and Income tax Act


Overview
MANDATORY EXCEPTIONS & OPTIONAL EXEMPTIONS
MANDATORY EXCEPTIONS OPTIONAL EXEMPTIONS

 Accounting estimates 

Business combinations
Share-based payment transactions
 De-recognition of financial assets  Insurance contracts
 Deemed cost
and financial liabilities  Leases
 Employee benefits
 Hedge accounting  Cumulative translation differences
Investments in subsidiaries, jointly controlled entities and
 Non-controlling interests 
associates
 Assets and liabilities of subsidiaries, associates and joint ventures
 Compound financial instruments
 Designation of previously recognized financial instruments
 Fair value measurement of financial assets or financial liabilities at
initial recognition
 Decommissioning liabilities included in the cost of property, plant
and equipment
 Financial assets or intangible assets accounted for in accordance
with IFRIC 12 Service Concession Arrangements
 Borrowing costs
 Transfers of assets from customers


Mandatory exceptions
ACCOUNTING ESTIMATES
 Change in estimates mandated only for transition to IFRS 1

 Changes in estimates due to new information available subsequent to balance
sheet date to be treated as non-adjusting.

 Certain estimates due to transition to IFRS- Reflect conditions at the date of
transition or in case of certain transactions (leases, intangibles, etc,) should
reflect the conditions at the date of the transactions


DE-RECOGNITION OF FINANCIAL ASSETS & FINANCIAL
LIABILITIES
 Apply the de-recognition rules in IAS 39 Financial Instruments Recognition and
Measurement prospectively from 1 January 2004 unless it chooses to apply the
de-recognition rules of IAS 39 retrospectively from a date of its choosing


Mandatory exception

HEDGE ACCOUNTING

 A first-time adopter is required in its opening IFRS statement on financial
position to:
 measure all derivatives at fair value; and
 eliminate all deferred gains and losses arising on derivatives that were reported under
previous GAAP as assets and liabilities.

 IAS 39 specifies number of restrictive criteria including appropriate
designation and documentation of the effectiveness at the inception of the
hedge and subsequently.


NON-CONTROLLING INTEREST
The exception stipulates that a first-time adopter should apply the following
requirements of IAS 27(2008) prospectively from the date of transition
to IFRSs:
 The requirement that total comprehensive income be attributed to the owners
of the parent and to the non-controlling interests even if this results in the
non-controlling interests having a deficit balance;
 The requirements regarding the accounting for changes in the parent’s
ownership interest in a subsidiary that do not result in a loss of control; and
 The requirements regarding the accounting for a loss of control over a
subsidiary, and the related requirements in paragraph 8A of IFRS 5, Non-
current Assets Held for Sale and Discontinued Operations.


Optional exemptions
IFRS 3: BUSINESS COMBINATIONS – TRANSITION DATE

2004 2005 2006 2007 2008 1-Jul-2009
Acquired XYZ Acquired Acquired ABC IFRS 3
Limited LMN Limited Limited effective


Optional exemptions

2004 2005 2006 2007 2008 1-Jul-2009

Apply IFRS for all acquisitions since incorporation, starting with acquisition of XYZ
Ltd


Optional exemptions

2004 2005 2006 2007 2008 1-Jul-2009

Apply IFRS for all acquisitions since 1-Jan-2005 (LMN Limited and
Apply later)
guidance
in
Appendix
C of
IFRS 1

Optional exemptions

2004 2005 2006 2007 2008 1-Jul-2009

Apply IFRS for all acquisitions since 1-Jan-2006 (ABC Limited)
Apply guidance in
Appendix C of IFRS 1


Optional exemptions

2004 2005 2006 2007 2008 1-Jul-2009

Apply guidance in Appendix C of IFRS 1
Apply IFRS for all acquisitions since 1-
Jan-2007 (ABC Limited and later)


Optional exemptions

2004 2005 2006 2007 2008 1-Jul-2009

Apply IFRS for all
acquisitions since 1-Jan-
2008 (ABC Limited and
later)


Optional exemptions

2004 2005 2006 2007 2008 1-Jul-2009

Apply IFRS for
all acquisitions
since 1-Jul-
2009


Optional exemptions
IFRS 3: BUSINESS COMBINATIONS- TRANSITION GUIDELINES
 Application of IAS 21 The Effects of Changes in Foreign Exchange Rates
 Continue the same classification as in its previous GAAP financial statements
 Exception to recognition of assets and liabilities at the date of acquisition:
 De-recognition requirement in accordance with IAS 39
 Differences in recognition principle per previous GAAP and IFRS
 Fair value as measurement basis
 Cost-based measurement
 Adjustments to goodwill
 Measurement of non-controlling interest and deferred tax
 Subsidiary not consolidated per previous GAAP.


Optional exemptions
IFRS 3: BUSINESS COMBINATIONS- TRANSITION GUIDELINES
FOR GOODWILL

 Adjustment to goodwill on account of:
 Differences in recognition principles of previous GAAP and IFRS
 Impairment test on the date of transition
 Goodwill not to be adjusted for:
 Research and development acquired
 Previous amortization of goodwill
 Adjustments per previous GAAP not allowed by IFRS 3
 Goodwill recognized as deduction from equity per previous GAAP
 Such goodwill will not be recognized in the opening IFRS balance sheet
 Adjustments as a result of subsequent resolution of contingency affecting purchase
consideration


Optional exemptions
IFRS 2: SHARE-BASED PAYMENT : EQUITY -SETTLED
TRANSACTIONS
Equity-settled transactions

Granted on or before 7 November IFRS 2 may be applied if fair value has previously
2002 been disclosed; however, it is not required

Granted after 7 November 2002 and IFRS 2 may be applied if fair value has previously
vesting before the date of transition been disclosed; however, it is not required

Granted after 7 November 2002 and IFRS 2 must be applied retrospectively with
vesting after the date of transition restatement of comparative information

Disclosure requirements in IFRS 2 (paragraphs 44 & 45) apply for all transactions that existed during the period,
irrespective of grant and vesting dates


Optional exemptions
IFRS 2: SHARE-BASED PAYMENT: CASH -SETTLED
TRANSACTIONS
Cash-settled transactions

Liabilities settled before date of IFRS 2 may be applied; however, not
transition required

Other liabilities IFRS 2 must be applied retrospectively with
restatement of comparative information


Optional exemptions
DEEMED COST
 Applies to Property, plant & equipment, investment property, intangible
assets, and oil and gas assets.

 IFRS 1 permits any one of the following amounts as the ‘deemed cost’ at the
date of transition :
 Fair value at the date of transition to IFRS
 A revaluation under previous GAAP that meets the following criteria:
 If it is comparable to fair value, or
 Cost or depreciated cost under IFRS, adjusted to reflect, for example change in general or specific price index
 A deemed cost measurement recognized under previous GAAP based on fair value at the
date of an event such as a privatization or an initial public offering (an ‘event-driven’ value).


Optional exemptions
DEEMED COST
 For assets acquired in a business combinations could fall in either of the
following category:
 Property, plant and equipment, investment property and intangible assets recognized under
previous GAAP
 Property, plant and equipment, investment property and intangible assets not recognized
under previous GAAP
 Retrospective application of IFRS 3


Optional exemptions
INVESTMENTS IN SUBSIDIARIES, JOINTLY CONTROLLED
ENTITIES AND ASSOCIATES
 In preparation of separate financial statements, a first-time adopter that
measures an investment at cost under (a) above is permitted to measure the
investment either at cost determined in accordance with IAS 27 or at
‘deemed’ cost. The deemed cost of an investment for this purpose is either
its:
 fair value (determined in accordance with IAS 39) at the date of transition in the entity’s
separate financial statements; or
 previous GAAP carrying amount at the date of transition in the entity’s separate financial
statements.


Optional exemptions
ASSETS & LIABILITIES OF SUBSIDIARIES, ASSOCIATES & JOINT
VENTURES
 If subsidiary, associate or joint venture becomes first-time adopter later than
the parent, it may measure its assets and liabilities at either:
 the carrying amount that would be included in the parent’s consolidated financial statements,
based on the parent’s date of transition to IFRSs, if no adjustments were made for
consolidation procedures and for the effects of the business combination in which the
parent acquired the subsidiary; or
 the carrying amounts required by IFRS 1 based on the subsidiary’s date of transition to
IFRSs.
 If a parent becomes a first-time adopter later than its subsidiary, associate or
joint venture the parent should, in its consolidated financial statements,
measure the assets and liabilities of the subsidiary at the same carrying
amount as in the financial statements of the subsidiary, after adjusting for
consolidation procedures and for the effects of the business combination in
which the parent acquired the subsidiary


Convergence with IFRS in India
ROADMAP
 Listed entities, banks and insurance entities and certain other large-sized
entities.

 Categories of IFRS

 Reasons for departures from IFRSs
 Legal and regulatory requirements
 Economic environment
 Level of preparedness
 Conceptual difference


Summary
OBJECTIVES
You should now be able to:
 Provide an overview of IFRS 1
 Discuss the mandatory exceptions to IFRS 1
 Summarize the optional exemptions to IFRS 1


Contact us
OUR CONTACT INFO

IFRS lead Partners
MUMBAI | Khozema Anajwalla
khozema.anajwalla@knavcpa.com

ATLANTA | Atul Deshmukh
atul.deshmukh@knavcpa.com

LONDON |Irfan Hussain
irfan.husain@knavcpa.com

WWW.KNAVCPA.COM

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IFRS 1

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