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IFRS 1 discusses exemptions under two circumstances.
1. If a subsidiary becomes a first-time adopter later than its parent, the subsidiary shall, in its separate (“stand-alone”) financial statements, measure its assets and
liabilities at either: (a) the carrying amounts that would be included in its parent’s consolidated financial statements, based on its parent’s date of transition to
IFRS (if no adjustments were made for consolidation procedures and for the effect of the business combination in which the parent acquired the subsidiary), or
(b) the carrying amounts required by the rest of this IFRS, based on the subsidiary’s date of transition to IFRS.
2. If an entity becomes a first-time adopter later than its subsidiary (or associate or joint venture), the entity shall, in its consolidated financial statements, measure
the assets and liabilities of the subsidiary (or associate or joint venture) at the same carrying amounts as in the separate (“stand-alone”) financial statements of
the subsidiary (or associate or joint venture), after adjusting for consolidation and equity accounting adjustments and for the effects of the business combination
in which an entity acquired the subsidiary. In a similar manner, if a parent becomes a first-time adopter for its separate financial statements earlier or later than
for its consolidated financial statements, it shall measure its assets and liabilities at the same amounts in both financial statements, except for consolidation
adjustments.
EXCEPTIONS TO RETROSPECTIVE APPLICATION OF OTHER IFRS
IFRS 1 prohibits retrospective application of some aspects of other IFRS relating to
1. Derecognition of financial assets and financial liabilities. If a first-time adopter derecognized financial assets or financial liabilities under its previous GAAP in
a financial year prior to January 1, 2001, it should not recognize those assets and liabilities under IFRS.
However, a first-time adopter should recognize all derivatives and other interests retained after derecognition, still existing, and consolidate all specialpurpose
entities (SPEs) that it controls at the date of transition to IFRS (even if SPEs existed before the date of transition to IFRS or hold financial assets or
financial liabilities that were derecognized under previous GAAP).
2. Hedge accounting. A first-time adopter is required, at the date of transition to IFRS, to measure all derivatives at fair value and eliminate all deferred losses and
gains on derivatives that were reported under its previous GAAP.
However, a first-time adopter shall not reflect a hedging relationship in its opening IFRS statement of financial position if it does not qualify for hedge
accounting under IAS 39. But if an entity designated a net position as a hedged item under its previous GAAP, it may designate an individual item within that
net position as a hedged item under IFRS, provided it does so prior to the date of transition to IFRS. Transitional provisions of IAS 39 apply to hedging
relationships of a first-time adopter at the date of transition to IFRS.
3. Estimates. An entity’s estimates under IFRS at the date of transition to IFRS should be consistent with estimates made for the same date under its previous
GAAP, unless there is objective evidence that those estimates were in “error.”
Any information an entity receives after the date of transition to IFRS about estimates it made under previous GAAP should be treated by it as a
“nonadjusting” event after the reporting period and accorded the treatment prescribed by IAS 10 (i.e., “disclosure” in footnotes as opposed to “adjustment” of
items in the financial statements).
4 . Noncontrolling interests. This exception applies for entities that have adopted the 2008 amendments to IFRS 3, Business Combinations, and IAS 27,
Consolidated and Separate Financial Statements. These amendments introduced new measurement requirements for noncontrolling interests (previously
described as “minority” interests) and a new mandatory exception to IFRS 1. The exception stipulates that a first-time adopter should apply the following
requirements of IAS 27 (2008) prospectively from the date of transition to IFRS:
• The requirement that total comprehensive income be attributed to the owners of the parent and to the noncontrolling interests even if this results in the
noncontrolling 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.
• The requirements regarding the accounting for a loss of control over a subsidiary, and the related requirements in paragraph 8A of IFRS 5,
Noncurrent Assets Held for Sale and Discontinued Operations.
This exception is effective for annual periods beginning on or after July 1, 2009. However, if a first-time adopter elects to apply IFRS 3 (2008) and IAS 27
(2008) for an earlier period, the amendments to IFRS 1 should also be applied for that earlier period.
PRESENTATION AND DISCLOSURE
IFRS 1 requires disclosures that explain how the transition from previous GAAP to IFRS affected the entity’s reported financial position, financial performance, and
cash flows.
This includes reconciliations of equity reported under previous GAAP to equity under IFRS both (1) at the date of the opening IFRS statement of financial position
and (2) the end of the last annual period reported under the previous GAAP. [IFRS 1.24(a)] (For an entity adopting IFRS for the first time in its December 31, 2009
financial statements, the reconciliations would be as of January 1, 2008 and December 31, 2008.)
It also includes reconciliations of total comprehensive income for the last annual period reported under the previous GAAP to total comprehensive income under
IFRS for the same period and an explanation of material adjustments that were made, in adopting IFRS for the first time, to the statement of financial position,
statement of comprehensive income, and cash flow statement.
If errors in previous GAAP financial statements were discovered in the course of transition to IFRS, those must be separately disclosed, and also if the entity
recognized or reversed any impairment losses in preparing its opening IFRS statement of financial position, these must be disclosed.
Facts
COMPREHENSIVE CASE STUDY