First IFRS financial statements

Last update 17/08/2019

The first annual financial statements in which an entity adopts International Financial Reporting Standards (IFRSs), by an explicit and unreserved statement of compliance with IFRSs.

Background

IFRS 1 sets out detailed rules that entities must follow when adopting IFRS for the first time. The standard also sets out a number of exemptions that may be applied when adopting IFRS.

If an entity wishes to apply either of these exemptions a full audit trail must be produced to outline the assessment and sufficient evidence must be provided to evidence that the application of the exemption is appropriate.

The main issues that entities need to be aware of when adopting IFRS 1 are:

A full audit trail for all adjustments from Local GAAP to IFRS will be required;
Additional reconciliations and disclosures will need to be produced, see detailed sections below;
A significant amount of analysis and documented evidence will be required even when proving ‘nil’ adjustments;
Key issues need to be flagged early and discussed with auditors to ensure there is timely agreement on accounting treatment;
The length of disclosures within the accounts as a result of IFRS will be increased;
Early engagement with Audit Committees is essential to ensure they are aware of the process and the impact of the change to IFRS; and
Significant investments in terms of time and resources are likely to be required to ensure that all issues with IFRS are resolved, especially for more complex accounts.

Other headlines

Additional disclosure notes outlining the effect of the adoption of IFRS, including the following, where the adjustments are material:

A reconciliation of equity (net assets) under local GAAP to equity under IFRS as at the opening balance date of forst adoption of IFRS.
A reconciliation between net operating costs for the preceding year reported under local GAAP and as reported under IFRS where this is not explained through the reconciliation of equity;
A disclosure note of any required impairment due to the adoption of IFRS.

Revise accounting policies to confirm that they are compliant with the requirements of IFRS. Areas that entities will commonly need to revise include:

Consolidation and boundary issues (IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 28 Investments in Associates and Joint Ventures).
The use of fair value for land and buildings fixed assets and the entity’s approach to valuation of the assets (IAS 16 Property, plant and equipment).
The approach used to valuing financial instruments (IFRS 9 Financial instruments, IFRS 7 Financial Instruments: Disclosures, IAS 32 Financial instruments: Presentation).
The approach to valuing and depreciating intangible non-current assets (IAS 38 Intangible Assets).
The application of the revised inventories guidance (where applicable) (IAS 2 Inventories).
The calculation of employee benefits accruals (IAS 19 Employee benefits).
The application of related parties guidance (IAS 24 Related Party Disclosures).
The explanation of significant areas of judgement and uncertainties in accounting estimates (IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, IFRS 7 Financial Instruments: Disclosures).

First IFRS financial statements

First IFRS financial statements First IFRS financial statements First IFRS financial statements First IFRS financial statements First IFRS financial statements First IFRS financial statements

Related IFRS Jargon:

IFRS Jargon: Deemed cost