The Core Aspects of International Financial Reporting Standards and International Accounting Standards

IFRS 1
First-Time Adoption of IFRS


Objective

The objective of IFRS 1 is to make sure that a reporting entity who adopts IFRS as its financial reporting basis prepares financial statements that:

- are clear for users and achieve 'comparability' over all the    periods presented within the financial statements;
- provide a suitable starting point for reporting under IFRS; and
- can be generated at a cost that does not exceed benefits to users.

An entity who chooses IFRS as its financial reporting basis must prepare an opening balance sheet (statement of financial position) at the date of transition to IFRS.  In preparing its opening balance sheet (statement of financial position), a reporting entity must;

a. recognise all IFRS assets and liabilities
b. not recognise assets and liabilities not permitted by IFRS
c. classify assets and liabilities by IFRS
d. apply IFRS in measuring all recognised assets and liabilities

Illustration


Alex Inc has a year end of 31 December 2008 and has decided to report under IFRS.

Required
What is the 'transition date' for the opening balance sheet (statement of financial position) that Alex Inc will have to prepare under the principles of IFRS 1?

Solution
The 'transition date' is the start of the earliest period for which comparative information is provided.  Therefore as 2007 is the comparative year, the start of this period is 1 January 2007 (i.e. the closing 2006 trial balance).

Exemptions

IFRS 1 grants limited exemptions in certain areas where the costs of complying with the requirements would outweigh the benefits to the users of financial statements.