Several Guidelines for the First-time Adoption of IFRS

IFRS 1 regarding on First-time Adoption of International Financial Reporting Standards.

Per IFRS 1, an entity must apply the standard in its first IFRS financial statements and in each interim financial report it presents under IAS 34 for a part of the period covered by its first IFRS financial statements. For example, if 2006 is the first annual period for which IFRS financial statements are being prepared, the quarterly or semiannual statements for 2006, if presented, must also comply with IFRS.

IFRS 1 stipulates that in preparing an opening IFRS statement of financial position, the first-time adopter (an entity is referred to as a first-time adopter in the period in which it presents its first IFRS financial statements) is to use the same accounting policies as it has used throughout all periods presented in its first IFRS financial statements.

Furthermore, the standard requires that those accounting policies must comply with each IFRS effective at the “reporting date” for its first IFRS financial statements, except under certain defined circumstances wherein the entity claims targeted exemptions from retrospective application of IFRS, or is prohibited by IFRS from applying IFRS retrospectively.

In other words, a first-time adopter should consistently apply the same accounting policies throughout the periods presented in its first IFRS financial statements and these accounting policies should be based on “latest version of the IFRS” effective at the reporting date.

If a new IFRS has been issued on the reporting date, but application is not yet mandatory, although reporting entities have been encouraged to apply it before the effective date, the first-time adopter is permitted, but not required, to apply it as well.

In general, IFRS 1 requires an entity to comply with each IFRS effective at the end of its first IFRS reporting period. In particular, the IFRS requires an entity to do the following in the opening IFRS statement of financial position that it prepares as a starting point for its accounting under IFRSs :

a) Recognize all assets and liabilities whose recognition is required by IFRSs;

b) Not recognize items as assets or liabilities if IFRSs do not permit such recognition;

c) Reclassify items that it recognized under previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity under IFRSs; and

d) Apply IFRSs in measuring all recognized assets and liabilities.

An entity is required to apply the IFRS if its first IFRS financial statements are for a period beginning on or after 1 January 2004. Earlier application is encouraged (IN6 IFRS 1)

To be continued (this is the first part of two articles)