IFRS 1FIRST TIME ADOPTION OF

IFRSAsish K Bhattacharyya

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First-time Adoption of IFRS - Introduction and Overview

Objective

• is transparent for users and comparable over all periods presented;

• provides a suitable starting point for accounting under International Financial Reporting Standards (IFRSs); and

• can be generated at a cost that does not exceed the benefits to users.

Application

• to the first IFRS financial statements (March 31, 2012); and

• each interim financial report under IFRS in the first period (2011-12)

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Slide 3

First-time Adoption of IFRS - Introduction and Overview (Contd..)

Requires

Identification of date of transition (April 1, 2010)

Selection of accounting policies that comply with IFRS

Preparation of an opening IFRS balance sheet as at April 1, 2010

The first IFRS financial statements are:

The first financial statements to contain “an explicit and unreserved statement of compliance with IFRSs”

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First-time Adoption of IFRS - Introduction and Overview (Contd..)

IFRS 1 requires retrospective adoption of most IFRSs, but

• the guidance is more comprehensive

• there are specific exemptions

• the latest version of each IFRS will be applied

• there is guidance on the use of previous estimates

• the disclosure requirements are more extensive

Financial statements are not IFRS financial statements when

• there is no explicit statement of compliance with IFRSs

• they do not comply with all aspects of IFRSs

• IFRSs are used to fill gaps in local guidance

RECOGNITION AND MEASUREMENT

Slide 5

Key Dates

• Transition date: – April 1,2010– First balance sheet to be prepared (not to be

published)

• Adoption date: April 1, 2011

• First financial statements under IFRS: March 31, 2012

• Apply all IFRSs applicable on March 31, 2012

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First-time Adoption of IFRS - Opening IFRS balance sheet

• An entity need not present its opening IFRS balance sheet in its first IFRS financial statements.

Adjustments are required to move from previous GAAP to IFRS

(except where an exemption or exception allows or requires otherwise)

• recognition of some new assets and liabilities

• derecognition of some old assets and liabilities

• reclassification previous-GAAP opening balance sheet items into the appropriate IFRS classification

• apply IFRSs in measuring all recognised assets and liabilities

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First-time Adoption of IFRS - Accounting policies

Accounting policies based on current version of IFRSs at the reporting date

• All standards that will be mandatory in the first year of IFRS financial statements

• Early adoption of other standards is permitted

• Retrospective application to opening IFRS balance sheet and all periods, subject to

• Optional exemptions; and

• Mandatory exceptions

Transitional guidance in IFRSs not used by first time adopters unless specifically directed

EXEMPTIONS AND EXCEPTIONS

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IFRS 1Exemptions summary

Comparatives for financialInstruments*

Designation of financial assets andFinancial liabilities

Insurance contracts*

Sixteen optional exemptions

Business combinations

Property, plant and equipment,investment properties, intangibles

Employee benefits Standardsin force at

reporting date Cumulative translation adjustment

Compound instruments

Transition date for subsidiaries,associates and joint ventures

Share-based payments

*Relief is for “2005 adopters” only

Decommissioning liabilities

Leases

Borrowing cost Service concessions arrangements

Exploration and Evaluation – O&GFair value measurement of financial

Instruments on initial recognition

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IFRS 1Exceptions summary

Four mandatory exceptions

Derecognition of financial assets and liabilities

Assets held for sale Hedge accounting

Standardsin force at

reporting date

Estimates

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First-time Adoption of IFRS - Optional exemptions from other IFRSs

Exemption Impact

Business combinations Previous business combinations need not be restated

Property, plant and equipment,investment properties, intangibles

Fair value or revaluation as deemed cost

Employee benefitsUnrecognised gains and losses at date of transition

need not be recognised

Cumulative translation differences May be set to zero for all subsidiaries

Date of transition for some entities Balances already reported by subsidiary to parent

need not be restated

Compound financial instrumentsCircumstances at inception, but equity element not

identified if liability is not outstanding

Designation of financial assets and liabilitiesDesignation as “at fair value through profit or loss” at

transition

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First-time Adoption of IFRS - Optional exemptions from other IFRSs - (Contd..)

Exemption Impact

Share-based payments Only apply IFRS 2 to share-based payments vested/settled

after date of transition/1 January 2005

Decommissioning liabilities Adjustments to the asset cost required by IFRIC 1 need not

be applied to changes to the liability occurring before

transition

Leases Apply the transitional provisions in IFRIC 4 Determining

whether an Arrangement contains a Lease.

Borrowing cost Use the transition provisions of IAS 23.

Fair value measurement of financial instruments on initial recognition

Measure fair value based on observable market current market transactions in the same instrument or based on a valuation technique.

Service concessions arrangements A first-time adopter may apply the transitional provisions in

IFRIC 12. *Relief is for “2005 adopters” only

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IFRS 3 need not be applied to combinations before date of transition (April 1, 2010)

• BUT, if one combination is restated, all subsequent combinations are restated

When the exemption is used

• No change in classification

• Post combination carrying amount deemed cost for assets and liabilities measured at cost

• Assets and liabilities measured at fair value restated at date of transition – adjust retained earnings

First-time Adoption of IFRS - Business combinations exemption

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Assets and liabilities not recognised at the time of a business combination under previous GAAP are:

• Recognized as if subsidiary adopted IFRSs at the same date

Subsidiaries not consolidated under previous GAAP are:

• Consolidated as if subsidiary adopted IFRSs at the same date

• Goodwill is the difference between cost of investment and net assets recognised at date of transition

First-time Adoption of IFRS - Business combinations exemption - (Contd..)

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Goodwill is recognised at the carrying amount under previous GAAP and adjusted for

• Intangibles that are not recognised under IFRS

• Intangibles that must be recognised under IFRS

• Contingent consideration not recognised; and

• Tested for impairment

Goodwill deducted from equity remains in equity

First-time Adoption of IFRS - Business combinations exemption – (Contd..)

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This IFRS prohibits retrospective application of some aspects of other IFRSs relating to:

• Derecognition of financial assets and financial liabilities

• Hedge accounting

• Estimates and

• Assets classified as held for sale and discontinued operations.

First-time Adoption of IFRS - Mandatory exceptions

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IFRS 1Mandatory exceptions

Retrospective application of IAS 39 is prohibited for

• Financial assets and liabilities derecognised before 1 January 2004 but:

– Recognise all derivatives and other interests retained from 1 January 2005;

– Consolidate all SPEs controlled at transition date (SIC-12)

• Hedge accounting

– Where the relationship does not qualify

– Until the documentation is in place

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First-time Adoption of IFRS - Estimates

Estimate required by previous GAAP?

Estimate required by previous GAAP?

Evidence of error?Evidence of error? Calculation consistent with IFRS?Calculation consistent with IFRS?

Make estimate reflecting conditions

at relevant date

Make estimate reflecting conditions

at relevant date

NO

YES NO

YES

Use previousestimate and adjust

to reflect IFRS

Use previousestimate and adjust

to reflect IFRSUse previous estimate

Use previous estimate

YES NO

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Assets held for sale / discontinued operations

• Apply IFRS 5 from 1 January 2005: no restatement of comparatives except:

– May apply from earlier date only if information obtained at earlier date

– First-time adopters after 2005 must apply retrospectively and restate comparatives

IFRS 1Mandatory exceptions

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IFRS 1Disclosures

• Reconciliation of equity from previous GAAP to IFRS at transition and last year end

• Reconciliation of last year’s net profit under previous GAAP to IFRS

• Sufficient detail to understand adjustments to each line item

• Errors made under previous GAAP and identified during transition

• Fair value as deemed cost and the amount of the adjustment

• IAS 36 disclosures for impairment identified during transition

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First-time Adoption of IFRS - Reconciliations

Interim financial Reports

• equity under previous GAAP at the end of that comparable interim period to its equity under IFRSs at that date; and

• its profit or loss under previous GAAP for that comparable interim period (current and year-to-date) to its profit or loss under IFRSs for that period.

• further information to comply with IAS 34

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First-time Adoption of IFRS - Reconciliations

Equity Equity andnet income

Reportingdate

Transitiondate

01.04.20X0

Year end – comparative

31.03.20X1 31.03.20X1

Equity andnet income

Interim – comparative

30.09.20X0

Interimdate

30.09.20X1

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First-time Adoption of IFRS - Existing IFRS subsidiaries

• Subsidiaries already reporting under IFRS do not apply exemptions

• Use subsidiary’s existing IFRS results for consolidation purposes, adjusted for

– Consolidation adjustments

– Accounting policy differences

However, business combinations exemption is applied as normal

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• Identification of Adoption Dates

• Selection of Options – Multiple Scenarios

• Enterprise-Wide Adoption for all Reporting Units

• Needs Pro-active Decisions

First-time Adoption of IFRS - Common implementation issues

Thank You