IFRS 1

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IFRS 1

  1. 1. IFRS-1 (R) First-time adoption of international financial reporting standards
  2. 2. 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
  3. 3. 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. 3 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  4. 4. 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. 4 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  5. 5. 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 5 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  6. 6. 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 6 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  7. 7. 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 7 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  8. 8. 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 8 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  9. 9. 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 9 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  10. 10. Mandatory exceptions 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 10 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  11. 11. 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. 11 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  12. 12. Mandatory exceptions 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. 12 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  13. 13. Optional exemptions IFRS 3: BUSINESS COMBINATIONS – TRANSITION DATE  First-time adopter has optional exemption from retrospective application 2004 2005 2006 2007 2008 1-Jul-2009 Acquired XYZ Acquired Acquired ABC IFRS 3 Limited LMN Limited Limited effective 13 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  14. 14. Optional exemptions IFRS 3: BUSINESS COMBINATIONS – TRANSITION DATE  First-time adopter has optional exemption from retrospective application 2004 2005 2006 2007 2008 1-Jul-2009 Acquired XYZ Acquired Acquired ABC IFRS 3 Limited LMN Limited Limited effective Apply IFRS for all acquisitions since incorporation, starting with acquisition of XYZ Ltd 14 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  15. 15. Optional exemptions IFRS 3: BUSINESS COMBINATIONS – TRANSITION DATE  First-time adopter has optional exemption from retrospective application 2004 2005 2006 2007 2008 1-Jul-2009 Acquired XYZ Acquired Acquired ABC IFRS 3 Limited LMN Limited Limited effective Apply IFRS for all acquisitions since 1-Jan-2005 (LMN Limited and Apply later) guidance in Appendix C of IFRS 1 15 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  16. 16. Optional exemptions IFRS 3: BUSINESS COMBINATIONS – TRANSITION DATE  First-time adopter has optional exemption from retrospective application 2004 2005 2006 2007 2008 1-Jul-2009 Acquired XYZ Acquired Acquired ABC IFRS 3 Limited LMN Limited Limited effective Apply IFRS for all acquisitions since 1-Jan-2006 (ABC Limited) Apply guidance in Appendix C of IFRS 1 16 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  17. 17. Optional exemptions IFRS 3: BUSINESS COMBINATIONS – TRANSITION DATE  First-time adopter has optional exemption from retrospective application 2004 2005 2006 2007 2008 1-Jul-2009 Acquired XYZ Acquired Acquired ABC IFRS 3 Limited LMN Limited Limited effective Apply guidance in Appendix C of IFRS 1 Apply IFRS for all acquisitions since 1- Jan-2007 (ABC Limited and later) 17 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  18. 18. Optional exemptions IFRS 3: BUSINESS COMBINATIONS – TRANSITION DATE  First-time adopter has optional exemption from retrospective application 2004 2005 2006 2007 2008 1-Jul-2009 Acquired XYZ Acquired Acquired ABC IFRS 3 Limited LMN Limited Limited effective Apply guidance in Appendix C of IFRS 1 Apply IFRS for all acquisitions since 1-Jan- 2008 (ABC Limited and later) 18 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  19. 19. Optional exemptions IFRS 3: BUSINESS COMBINATIONS – TRANSITION DATE  First-time adopter has optional exemption from retrospective application 2004 2005 2006 2007 2008 1-Jul-2009 Acquired XYZ Acquired Acquired ABC IFRS 3 Limited LMN Limited Limited effective Apply guidance in Appendix C of IFRS 1 Apply IFRS for all acquisitions since 1-Jul- 2009 19 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  20. 20. 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. 20 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  21. 21. 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 21 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  22. 22. 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 22 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  23. 23. 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 23 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  24. 24. 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). 24 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  25. 25. 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 25 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  26. 26. 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. 26 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  27. 27. 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 27 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  28. 28. 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 28 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  29. 29. 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 29 IFRS 1: First-time adoption of international © 2010 KNAV P.A. All rights reserved financial reporting standards
  30. 30. 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 30 © 2010 KNAV P.A. All rights reserved

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