whether an entity is a first-time adopter.
Example 5.1:
Scope of application of IFRS 1
Entity A applied IFRSs in its previous financial statements, but stated that it ‘applied IFRSs except for IFRS 2
– Share-based Payment.’
Entity A is a first-time adopter because its financial statements did not contain an unreserved statement of
compliance with IFRSs. It is irrelevant whether the auditors’ report was qualified or not.
Entity B applied IFRSs in its previous financial statements and stated that the ‘financial statements are
prepared in conformity with IFRSs.’ Despite that statement, Entity B had not applied IFRS 2.
Entity B is not a first-time adopter because its financial statements contained an unreserved statement of
compliance with IFRSs. Even if the auditors had qualified their report, the entity would still not be a first-
time adopter.
It is clear that the scope of IFRS 1 is very much rule-based, which, as the example above
illustrates, can lead to different answers in similar situations and sometimes to counter-
intuitive answers.
Example 5.2:
Entity applying national GAAP and IFRSs
Entity C prepares two sets of financial statements, one set of financial statements based on its national GAAP
and the other set based on IFRSs. The IFRS financial statements contained an explicit and unreserved
statement of compliance with IFRSs and were made available externally. From 2019 onwards, Entity C stops
presenting financial statements based on its national GAAP.
Entity C is not a first-time adopter because it already published financial statements that contained an explicit
and unreserved statement of compliance with IFRSs.
First-time
adoption
221
Example 5.3:
First IFRS financial statements outside the annual report or
statutory financial statements
Entity E prepared financial statements under its previous GAAP for the period ending 31 December 2018. In
connection with its initial public offering, Entity E published an offering document that includes IFRS financial
statements that contain an unreserved statement of compliance with IFRSs. The date of transition to IFRSs for the
purposes of those financial statements, which cover the most recent three financial years, was 1 January 2016.
Entity E’s annual report (or statutory financial statements) are prepared under IFRSs for the first time for the
period ending 31 December 2019.
The IFRS financial statements included in Entity E’s offering document were its first IFRS financial statements,
containing an unreserved statement of compliance with IFRSs. Therefore, Entity E should not apply IFRS 1 in
its first annual report (or statutory financial statements) prepared under IFRSs as it is not a first-time adopter.
Although not required by IFRSs, Entity E may want to repeat information about its transition to IFRSs in its
annual report (or statutory financial statements) for the year ended 31 December 2019.
If, however, Entity E had included financial statements in its offering document that did not contain an unreserved
statement of compliance with IFRSs then the annual report for 2019 (or statutory financial statements) would need
to be prepared in accordance with IFRS 1. If those financial statements only included comparative information for
the year ended 31 December 2018 then Entity E’s date of transition would be 1 January 2018.
An entity will be a first-time adopter if it has previously prepared financial statements
in accordance with IFRSs but only for internal purposes. The entity may have:
• prepared financial statements in accordance with IFRSs for internal use only,
without making them available to the entity’s owners or any other external users;
• prepared a reporting package in accordance with IFRSs for consolidation purposes
without preparing a complete set of financial statements as defined in IAS 1 –
Presentation of Financial Statements (as revised in 2007). [IFRS 1.3(b)-(c)].
IFRSs are intended to be applied in the preparation of general-purpose financial statements.
Accordingly, financial statements that are restricted for specific use or incomplete reporting
packages should not be deemed to comply with IFRSs. An entity that is a subsidiary of an
IFRS reporting parent may be able to use the amounts reported for it in the group’s financial
statements when it adopts IFRSs for its own financial statements (see 5.9.1 below).
Finally, IFRS 1 applies also to a first-time adopter that did not present financial
statements for previous periods. [IFRS 1.3(d)]. For example, when an entity transfers its
operations into a new company prior to an issue to the public, the new company would
be a first-time adopter if the entity never applied IFRSs in the past.
An entity that is already applying IFRSs in preparing its financial statements cannot
apply IFRS 1 to changes in its accounting policies. Instead, such an entity should apply:
• the requirements of IAS 8; and
• specific transitional requirements in other IFRSs. [IFRS 1.5].
2.2
When should IFRS 1 be applied?
An entity that presents its first IFRS financial statements is a first-time adopter,
[IFRS 1 Appendix A], and should apply IFRS 1 in preparing those financial statements. [IFRS 1.2(a)].
It should also apply the standard in each interim financial report that it presents in
accordance with IAS 34 – Interim Financial Reporting – for a part of the period covered
by its first IFRS financial statements. [IFRS 1.2(b)]. Therefore, a first-time adopter does not
apply IFRS 1 to a ‘trading statement’, an ‘earnings press release’ or other financial report
222 Chapter
5
issued at its interim reporting date that is not described as complying with IAS 34 or IFRSs.
In Extract 5.1 below, AGF Mutual Funds described its adoption of IFRSs in its interim or
semi-annual financial statements.
Extract 5.1: AGF Mutual Funds (2014)
Notes to Financial Statements (UNAUDITED) [extract]
2.
SUMMARY OF ACCOUNTING POLICIES: [extract]
Basis of presentation and adoption of International Financial Reporting Standards
These financial statements have been prepared in compliance with International Financial Reporting Standards (“IFRS”)
applicable to the preparation of interim financial statements, including International Accounting Standard (“IAS”) 34,
Interim Financial Reporting and IFRS 1, First-time Adoption of International Financial Reporting Standards. The Funds
adopted this basis of accounting effective October 1, 2014 as required by Canadian securities legislation and the Canadian Accounting Standards Board. Previously, the Funds prepared their financial statements in accordance with Canadian
generally accepted accounting principles as defined in Part V of the CPA Handbook (“Canadian GAAP”). The Funds
have consistently applied the accounting policies used in the preparation of their opening IFRS statements of financial
position as at October 1, 2013 and throughout all periods presented, as if these policies had always been in effect. Note 10
includes disclosures of the impact of the transition to IFRS on the Funds’ reported financial position and financial
performance, including the nature and effect of significant changes in accounting policies from those used in the Funds’
financ
ial statements for the year ended September 30, 2014 prepared under Canadian GAAP.
2.2.1
Repeat application of IFRS 1
IFRS 1 does not prohibit an entity from applying IFRS 1 more than once and, in fact,
requires it in some cases. [IFRS 1.3(a)]. The IASB explained this issue with an example of an
entity that had applied IFRS 1 in connection with a foreign listing, subsequently delisted
from the foreign exchange and no longer presented IFRS financial statements, but is now
adopting IFRSs again together with other entities in its local jurisdiction – see Example 5.4
below. This was clarified by the Board in the Annual Improvements to IFRSs 2009-2011
Cycle, issued in May 2012. IFRS 1 was amended to clarify that an entity that stopped
applying IFRSs in the past and chooses, or is required, to resume preparing IFRS financial
statements has the option to apply IFRS 1 again. [IFRS 1.4A]. The Board reasoned that the
entity should on cost-benefit grounds be allowed, rather than required, to apply IFRS 1
again. [IFRS1.BC6C]. If the entity chooses not to reapply IFRS 1, it must retrospectively restate
its financial statements in accordance with IAS 8 as if it had never stopped applying IFRSs
while disclosing (in addition to the disclosures required by IAS 8) the reasons why it
stopped applying IFRSs and why it resumed applying IFRSs, as well as the reasons for
choosing the retrospective restatement method. [IFRS1.4B, 23A, 23B].
Example 5.4:
Repeated application of IFRS 1 when an entity does not apply
IFRSs for one year
Entity D prepared IFRS financial statements for 2016 and 2017 that contained an explicit and unreserved
statement of compliance with IFRSs. However, in 2018 Entity D did not make an unreserved statement of
compliance with IFRS.
If Entity D resumes presenting financial statements in accordance with IFRS, it may choose to apply IFRSs
as a first-time adopter or it may elect to restate its financial statements retrospectively as if it had never
stopped producing IFRS financial statements.
First-time
adoption
223
If it elects to apply IFRSs as a first-time adopter for the purposes of its 2019 financial statements, there is no
requirement under IFRS 1 for Entity D to base its first IFRS financial statements in 2019 on the IFRS information
that it produced before 2019. Therefore, Entity D is able to apply the IFRS 1 exemptions without regard to the
elections it made in its first IFRS financial statements in 2016. In fact, Entity D is unable to apply certain IFRS 1
exemptions by reference to the date of transition that it used in its 2016 financial statements (see 3.5 below).
2.3
Determining the previous GAAP
An entity may prepare two complete sets of financial statements, e.g. one set of financial
statements based on its national GAAP and another set for distribution to foreign investors
based on US GAAP. Applying the definition of ‘previous GAAP’ (i.e. ‘the basis of accounting
that a first-time adopter used immediately before adopting IFRSs’ [IFRS 1 Appendix A]) to such
a dual reporting entity is not straightforward, as the examples below illustrate:
(a) a dual reporting entity adopts IFRSs and at the same time stops presenting financial
statements under its national GAAP and US GAAP: Both national GAAP and
US GAAP meet the definition of ‘previous GAAP’. However, the entity can only
present one set of IFRS financial statements. Therefore, the entity must choose a
‘previous GAAP’. While, at least in theory, this appears to be a free choice there
are a number of limiting constraints that should be taken into account:
(i) national legislation and regulatory requirements may restrict an entity’s
options and require either national GAAP or US GAAP to be designated as the
previous GAAP;
(ii) comparability with other entities in the same jurisdiction may be increased if
all entities in that jurisdiction use the same GAAP as their previous GAAP; and
(iii) one set of financial statements is considered to be the ‘main’ set of financial
statements, for example:
• if the national GAAP financial statements received very limited
circulation then they are clearly not the entity’s ‘main’ financial
statements. Conversely, if the US GAAP financial statements are only
prepared for a specific purpose (e.g. to obtain a bank loan) then they may
not be the entity’s ‘main’ financial statements; or
• the relative dominance of shareholder groups might provide an
indication as to which set of financial statements is considered to be the
‘main’ set of financial statements.
An entity should apply judgement when the constraints above do not all identify
the same GAAP as the previous GAAP.
IFRS 1 only requires disclosure of reconciliations between an entity’s previous
GAAP and IFRSs. However, it will be advisable for an entity to provide disclosures,
on a voluntary basis, that contain sufficient information to enable users to
understand the material reconciling items between the IFRS financial statements
and the financial statements that were not prepared under its previous GAAP.
Some national regulators (e.g. the US Securities and Exchange Commission), in
fact, expect such disclosures (see 8.1.2 below).2
(b) a dual reporting entity adopts IFRSs and at the same time continues to present
financial statements under its national GAAP but stops presenting financial
statements under US GAAP: While one might expect US GAAP to be treated as the
224 Chapter
5
previous GAAP, both national GAAP and US GAAP meet the definition of
‘previous GAAP’. An entity should therefore consider the criteria (i) to (iii) under
(a) above in determining its previous GAAP.
If an entity treats its national GAAP as its previous GAAP then it may want or need
to present an explanation of the differences between US GAAP and IFRSs to aid
former users of the US GAAP financial statements.
As illustrated in Extract 5.2 below, when Infosys adopted IFRSs it treated Indian
GAAP as its previous GAAP even though it continued to report under Indian GAAP
for statutory purposes. However, Infosys provided additional reconciliations
between US GAAP and its previous GAAP.
(c) a dual reporting entity adopts IFRSs and at the same time stops presenting financial
statements under US GAAP. Several years later it stops presenting financial
statements under its national GAAP: The entity is not a first-time adopter when it
ceases to present financial statements under its national GAAP, even if the entity
treated US GAAP as its previous GAAP when it adopted IFRSs. [IFRS 1.4(a)].
However, the entity may want or need to present an explanation of the differences
between its national GAAP and IFRSs to aid former users of its national GAAP
financial statements.
Extract 5.2: Infosys Technologies Limited (2009)
2 Notes to the consolidated financial statements [extract]
2.1 Transition to IFRS reporting [extract]
The financial statements of Infosys Technologies Limited and its subsidiaries have been prepared in accordance with
IFRS. Infosys Technologies Limited and its subsidiaries adopted all IFRS standards and the adoption was carr
ied
out in accordance to IFRS 1, using April 1, 2007 as the transition date. The transition was carried out from Indian
GAAP, which was considered as the Previous GAAP. The effect of adopting IFRS has been summarized in the
reconciliations provided. The transition to IFRS reporting has resulted in changes in the reported financial statements,
notes thereto and accounting principles compared to what had been presented previously. Until the adoption of IFRS,
the financial statements included in the Annual Reports on Form 20-F and Quarterly Reports on Form 6-K were
prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP)
under the historical cost convention on the accrual basis. However, for the purposes of the transition, such transition
was carried out from Indian GAAP, which has been considered as the Previous GAAP. The reconciliation statements
provided in Note 2.2 describe the differences between IFRS and Indian GAAP. In addition, reconciliations from U.S.
GAAP to Indian GAAP have been provided in Note 2.3 for the periods presented.
The Group’s financial statements for the year ending March 31, 2009 are the first annual financial statements to
comply with IFRS.
2.3 The following voluntary reconciliations provide a quantification of reconciliation items between U.S. GAAP
and Previous GAAP: [extract]
• equity as at April 1, 2007 (Note 2.3.1)
• equity as at March 31, 2008 (Note 2.3.2)
• equity as at March 31, 2009 (Note 2.3.3)
• net income for the year ended March 31, 2008 (Note 2.3.4)
• net income for the year ended March 31, 2009 (Note 2.3.5)
First-time
adoption
225
2.3.1
Transition to IFRSs from a similar GAAP
One consequence of the ongoing harmonisation of accounting standards around the
world is that many national GAAPs are now virtually identical to IFRSs. However,
differences between these national GAAPs and IFRSs often exist regarding the scope,
transitional provisions, effective dates and actual wording of standards. In addition,
some national GAAPs contain accounting alternatives not permitted by IFRSs.
When an entity reporting under such a national GAAP (e.g. Singapore GAAP) adopts
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 45
