OPENING BALANCE SHEET
The opening IFRS balance sheet as at the transition date should
• recognize all assets and liabilities whose recognition is required by IFRS; but
• not recognize items as assets or liabilities whose recognition is not permitted by IFRS.
With regard to event-driven fair values, if fair value had been used for some or all assets and liabilities under a previous GAAP, these fair values can be used as the IFRS "deemed costs" at date of measurement.
When preparing the opening balance sheet:
• Recognize all assets and liabilities whose recognition is required by IFRS. Examples ofchanges from national GAAP are derivatives, leases, pension liabilities and assets, and
deferred tax on revalued assets. Adjustments required are debited or credited to equity.
• Remove assets and liabilities whose recognition is not permitted by IFRS. Examples of
changes from national GAAP are deferred hedging gains and losses, other deferred
costs, some internally generated intangible assets, and provisions. Adjustments required are debited or credited to equity.
• Reclassify items that should be classified differently under IFRS. Examples of changes from national GAAP are financial assets, financial liabilities, leasehold property, compound
financial instruments, and acquired intangible assets (reclassified to goodwill). Adjustments required are reclassifications between balance sheet items.
• Apply IFRS in measuring assets and liabilities by using estimates that are consistent with national GAAP estimates and conditions at the transition date.
Examples of changes from national GAAP are deferred taxes, pensions, depreciation, or impairment
of assets. Adjustments required are debited or credited to equity.
Derecognition criteria of financial assets and liabilities are applied prospectively from the transition date. Therefore, financial assets and financial liabilities which have been derecognized under national GAAP are not reinstated.
However:
• All derivatives and other interests retained after derecognition and existing at transition date must be recognized.
• All special purposed entities (SPE) controlled as at transition date must be consolidated. Derecognition criteria can be applied retrospectively provided that the information needed
was obtained when initially accounting for the transactions.
Cumulative foreign currency translation differences on translation of financial statements of a foreign operation can be deemed to be zero at transition date. Any subsequent gain or loss on disposal of operation excludes pretransition date translation differences.
ASSETS
With regard to property plant and equipment, the following amounts can be used as IFRS deemed cost:
• Fair value at transition date
• Pretransition date revaluations, if the revaluation was broadly comparable to either
• fair value, or
• (depreciated) cost adjusted for a general or specific price index
First-Time Adoption of IFRS (IFRS 1)
With regard to investment property, the following amounts can be used as IFRS "deemed cost" under the cost model:
• Fair value at transition date
• Pretransition date revaluations, if the revaluation was broadly comparable to either
• fair value, or
• (depreciated) cost adjusted for a general or specific price index
If a fair value model is used no exemption is granted.
With regard to intangible assets, the following amounts can be used as deemed cost,
provided that there is an active market for the assets:
• Fair value at transition date
• Pretransition date revaluations if the revaluation was broadly comparable to either
• fair value, or
• (depreciated) cost adjusted for general or specific price index
With regard to defined benefit plans, the full amount of the liability or asset must be recognized, but deferrals of actuarial gains and losses at transition date can be set to zero. For post transition date actuarial gains and losses, one could apply the corridor approach or any other acceptable method of accounting for such gains and losses.
Previously recognized financial instruments can be designated as trading or available for sale—from the transition date, rather than initial recognition.
Financial instruments comparatives for IAS 32 and IAS 39 need not be restated in the first IFRS financial statements. Previous national GAAP should be applied to comparative information for instruments covered by IAS 32 and IAS 39. The major adjustments to
comply with IAS 32 and IAS 39 must be disclosed, but need not be quantified. Adoption of IAS 32 and IAS 39 should be treated as a change in accounting policy. the liability portion of a compound instrument is not outstanding at the transition date an entity need not separate equity and liability components, thereby avoiding reclassifications within equity.
Hedge accounting should be applied prospectively from the transition date, provided that hedging relationships are permitted by IAS 39 and that all designation, documentation, and effectiveness requirements are met from the transition date.
BUSINESS COMBINATIONS
It is not necessary to restate pretransition date business combinations. If any are restated, all later combinations must be restated. If information related to prior business combinations are not restated, the same classification (acquisition, reverse acquisition, and uniting of interests)
must be retained. Previous GAAP carrying amounts are treated as deemed costs for IFRS purposes.
However, those IFRS assets and liabilities which are not recognized under national GAAP must be recognized, and those which are not recognized under IFRS must be removed.
With regard to business combinations and resulting goodwill, if pretransition date business combinations are not restated, then
• goodwill for contingent purchase consideration resolved before transition date should
be adjusted,
• any non-IFRS acquired intangible assets (not qualifying as goodwill) should be reclassified,
• an impairment test should be carried out on goodwill, and
• any existing negative goodwill should be credited to equity.
First-Time Adoption of IFRS (IFRS 1) 13
Foreign currency translation and pretransition date goodwill and fair value adjustments
should be treated as assets and liabilities of the acquirer, not the acquiree. They are not restated for post acquisition changes in exchange rates—either pre- or post transition date.
EXEMPTIONS
Exemptions in respect of the retrospective application of IFRS, relate to the following:
• Business combinations prior to the transition date
• Fair value or revalued amounts, which can be taken as deemed costs
• Employee benefits
• Cumulative foreign currency translation differences, goodwill, and fair value adjustments
• Financial instruments, including hedge accounting
PRESENTATION AND DISCLOSURE
A statement should be made to the effect that the financial statements are being prepared in terms of IFRS for the first time.
Prior information that cannot be easily converted to IFRS should be dealt with as follows:
• Any previous GAAP information should be prominently labeled as not being prepared under IFRS.
• Where the adjustment to the opening balance of retained earnings cannot be reasonably determined, that fact should be stated.
Where IFRS 1 permits a choice of transitional accounting policies, the policy selected should be stated.
The way in which the transition from previous GAAP to IFRS has affected the reported financial position, financial performance, and cash flows should be explained.
With regard to reporting date reconciliations from national GAAP (assume December 31, 2005), the following must be disclosed:
• Equity reconciliation at the transition date (January 1, 2004) and at the end of the last
national GAAP period (December 31, 2004)
• Profit reconciliation for the last national GAAP period (December 31, 2004)
With regard to interim reporting reconciliations (assume interim report to June 30, 2005 and reporting date to be December 31, 2005), the following must be disclosed:
• Equity reconciliation at the transition date (January 1, 2004), at the prior year comparative
date (June 30, 2004), and at the end of last national GAAP period (December 31, 2004)
• Profit reconciliation for the last national GAAP period (December 31, 2004) and for the
prior year comparative date (June 30, 2004)
Impairment losses are disclosed as follows:
• Recognized or reversed on transition to IFRS
• IAS 36 disclosures as if recognized or reversed in period beginning on transition date
Use of fair values as deemed costs is as follows:
• Disclosed aggregate amounts for each line item
• Disclosed adjustment from national GAAP for each line
