International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
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recognised. [IFRS 14.B10].
5.20.7.C
Application of IAS 36 – Impairment of Assets
As a rate-regulated entity is allowed to continue applying previous GAAP accounting
policies, the requirements under IAS 36 do not apply to the separate regulatory deferral
account balances recognised. However, IAS 36 may require an entity to perform an
impairment test on a CGU that includes regulatory deferral account balances. An
impairment test would be required if:
• the CGU contains goodwill; or
• one or more of the impairment indicators described in IAS 36 have been identified
relating to the CGU. [IFRS 14.B15-B16].
In such situations, the requirements under paragraphs 74-79 of IAS 36, for identifying
the recoverable amount and the carrying amount of a CGU, should be applied to decide
whether any of the regulatory deferral account balances recognised are included in the
carrying amount of the CGU for the purpose of the impairment test. The remaining
requirements of IAS 36 should then be applied to any impairment loss that is recognised
as a result of this test (see Chapter 20). [IFRS 14.B16].
5.20.7.D
Application of IFRS 3 – Business Combinations
If an entity acquires a business, paragraph B18 of IFRS 14 provides an exception to the
core principle of IFRS 3 (that is, to recognise the assets acquired and liabilities assumed
at their acquisition-date fair value) for the recognition and measurement of an
acquiree’s regulatory deferral account balances at the date of acquisition. In other
words, the acquiree’s regulatory deferral account balances are recognised in the
consolidated financial statements of the acquirer in accordance with the acquirer’s
previous GAAP policies for the recognition and measurement of regulatory deferral
account balances, irrespective of whether the acquiree recognises those balances in its
own financial statements. [IFRS 14.B18].
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5.20.7.E
Application of IFRS 10 – Consolidated Financial Statements – and IAS 28
– Investments in Associates and Joint Ventures
If a parent entity recognises regulatory deferral account balances in its consolidated
financial statements under IFRS 14, the same accounting policies have to be applied to
the regulatory deferral account balances arising in all of its subsidiaries. This should
apply irrespective of whether the subsidiaries recognise those balances in their own
financial statements. [IFRS 14.B23, IFRS 10.19].
Similarly, accounting policies for the recognition, measurement, impairment and
derecognition of regulatory deferral account balances of an associate or joint venture
will have to conform to those of the investing entity in applying the equity method.
[IFRS 14.B24, IAS 28.35-36].
5.21 IFRS
15 – Revenue from Contracts with Customers
The requirements of IFRS 15 are discussed in Chapter 28. Paragraph D34 of IFRS 1
requires first-time adopters to apply IFRS 15 on a retrospective basis, with the option of
applying the practical expedients in paragraph C5 of IFRS 15. Here are the practical
expedients in paragraph C5 of IFRS 15:
• for completed contracts, an entity need not restate contracts that begin and end
within the same annual reporting period or contracts that are completed prior to
the beginning of the earliest period presented;
• for completed contracts that have variable consideration, an entity may use the
transaction price at the date the contract was completed rather than estimating
variable consideration amounts in the comparative reporting periods;
• for contracts that were modified before the beginning of the earliest period
presented, an entity need not retrospectively restate the contract for those
contract modifications in accordance with paragraphs 20-21 of IFRS 15. Instead, an
entity should reflect the aggregate effect of all of the modifications that occur
before the beginning of the earliest period presented when;
• identifying the satisfied and unsatisfied performance obligations;
• determining the transaction price; and
• allocating the transaction price to the satisfied and unsatisfied performance
obligations;
• for all reporting periods presented before the beginning of the first IFRS reporting
period, an entity need not disclose the amount of the transaction price allocated to
the remaining performance obligations and an explanation of when the entity expects
to recognise that amount as revenue (see paragraph 120 of IFRS 15). [IFRS 15.C5].
For the purposes of IFRS 15, paragraph D35 of IFRS 1 defines a completed contract as a
contract for which the entity has transferred all of the goods or services as identified in
accordance with previous GAAP.
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A first-time adopter may elect to apply one, some or all of these expedients. However,
if an entity elects to use any of them, it must apply that expedient consistently to all
contracts within all reporting periods presented. In addition, an entity is required to
disclose the following information:
• the expedients that have been used; and
• to the extent reasonably possible, a qualitative assessment of the estimated effect
of applying each of those expedients. [IFRS 15.C6].
5.22 Foreign currency transactions and advance consideration
IFRIC 22 – Foreign Currency Transactions and Advance Consideration – addresses
how to determine the date of the transaction for the purpose of determining the
exchange rate to use on initial recognition of the related asset, expense or income (or
part of it) on the derecognition of a non-monetary asset or non-monetary liability arising
from the payment or receipt of advance consideration in a foreign currency. [IFRIC 22.7].
The Interpretation applies to a foreign currency transaction (or part of it) when an entity
recognises a non-monetary asset or non-monetary liability arising from the payment or
receipt of advance consideration before the entity recognises the related asset, expense
or income (or part of it). [IFRIC 22.4].
A first-time adopter need not apply the interpretation to assets, expenses and income
in the scope of the interpretation that were recognised before the date of transition to
IFRSs. [IFRS 1.D36].
5.23 Short-term exemptions from restatement of comparative
information for IFRS 9
With the issuance of IFRS 9, the IASB introduced a new short-term exemption
(paragraph E1 – E2 of IFRS 1) from the requirement to restate comparative information
for IFRS 9. If an entity’s first IFRS reporting period begins before 1 January 2019 and the
entity applies the complete version of IFRS 9 (issued in 2014), the comparative
information in the entity’s first IFRS financial statements need not comply with IFRS 7
– Financial Instruments: Disclosures – or IFRS 9, to the extent that the disclosures
required by IFRS 7 relate to items within the scope of IFRS 9. For such entities,
references to the ‘date of transition to IFRSs’ should mean, in the case of IFRS 7 and
IFRS 9 only, the beginning of the first IFRS reporting period.
The wording o
f the short term exemption in E1 is not as clear as the IASB would have
liked, because of the phrase ‘to the extent that the disclosures required by IFRS 7 relate
to items within the scope of IFRS 9’ included at the end of the paragraph. Some have
read the phrase to suggest the exemption is limited only to the disclosures required by
IFRS 7. However, the wording in E2 clarifies how an entity would apply the exemption
in E1 in its first IFRS financial statements and confirms that E1 provides an exemption
from applying IFRS 9 in the comparative period.
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Paragraph E2 of IFRS 1 lists the requirements for entities that choose to present
comparative information that does not comply with IFRS 7 and IFRS 9 in their first IFRS
financial statements:
• the requirements of previous GAAP must be applied to comparative information
about items within the scope of IFRS 9 and disclosure of this fact together with the
basis used to prepare this information;
• treat any adjustment between the statement of financial position at the
comparative period’s reporting date and the statement of financial position at the
start of the first IFRS reporting period as arising from a change in accounting policy
and give the disclosures required by paragraphs 28(a)–(e) and (f)(i) of IAS 8.
Paragraph 28(f)(i) of IAS 8 applies only to amounts presented in the statement of
financial position at the comparative period’s reporting date;
• additional disclosures must be provided in accordance with paragraph 17(c) of
IAS 1 when compliance with the specific requirements in IFRSs is insufficient to
enable users to understand the impact of particular transactions, other events and
conditions on the entity’s financial position and financial performance.
5.24 Short-term exemptions from IFRIC 23
IFRIC 23 – Uncertainty over Income Tax Treatments – was released in May 2017 and
clarifies how to apply the recognition and measurement requirements in IAS 12 when there
is uncertainty over income tax treatments. The interpretation must be applied for annual
reporting periods beginning on or after 1 January 2019 with earlier application permitted.
E8 of IFRS 1 permits a first-time adopter whose date of transition to IFRS is before
1 July 2017 not to reflect the application of IFRIC 23 in comparative information in its
first IFRS financial statements with the cumulative effect of applying the interpretation
recognised as an adjustment to the opening balance of retained earnings (or other
component of equity, as appropriate) at the beginning of its first IFRS reporting period.
6
PRESENTATION AND DISCLOSURE
An entity’s first IFRS financial statements should include at least three statements of
financial position, two statements of profit or loss and other comprehensive income,
two separate statements of profit or loss (if presented), two statements of cash flows and
two statements of changes in equity and related notes, including comparative
information for all statements presented. [IFRS 1.21].
A first-time adopter is required to present notes supporting its opening IFRS statement
of financial position that is clarified as a part of the Annual Improvements to
IFRSs 2009-2011 Cycle6 issued in May 2012. The Board explained that a first-time
adopter should not be exempted from presenting three statements of financial position
and related notes because it might not have presented this information previously on a
basis consistent with IFRSs. [IFRS 1.BC89B].
IFRS 1 does not exempt a first-time adopter from any of the presentation and disclosure
requirements in other standards, [IFRS 1.20], with the exception of certain presentation
and disclosures regarding:
• claims development information under IFRS 4 (see 5.4 above); and
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• recognised regulatory deferral account balances under IFRS 14 (see 5.20 above).
6.1 Comparative
information
IAS 1 requires, except where a standard or interpretation permits or requires otherwise,
comparative information in respect of the previous period for all amounts reported in
the current period’s financial statements and comparative information for narrative and
descriptive information when it is relevant to an understanding of the current period’s
financial statements. [IAS 1.38].
6.2
Non-IFRS comparative information and historical summaries
Normally IFRSs require comparative information that is prepared on the same basis as
information relating to the current reporting period. However, if an entity presents historical
summaries of selected data for periods before the first period for which it presents full
comparative information under IFRSs, e.g. information prepared under its previous GAAP,
IFRS 1 does not require such summaries to comply with the recognition and measurement
requirements of IFRSs. Furthermore, some entities present comparative information under
previous GAAP in addition to the comparative information required by IAS 1. [IFRS 1.22].
As an entity is only allowed to apply IFRS 1 in its first IFRS financial statements, a literal
reading of IFRS 1 would seem to suggest that the above exemption is not available to an
entity that prepares its second IFRS financial statements. In practice this need not cause
a significant problem because this type of information is generally presented outside the
financial statements, where it is not covered by the requirements of IFRSs.
If an entity presents, in the IFRS financial statements, historical summaries or
comparative information under its previous GAAP, it should: [IFRS 1.22]
(a) label the previous GAAP information prominently as not being prepared in
accordance with IFRSs; and
(b) disclose the nature of the main adjustments that would make it comply with IFRSs.
Those adjustments need not be quantified.
Although IFRS 1 does not specifically require disclosure of this information when the
historical summaries or comparative information are presented outside the financial
statements, these explanations would clearly be of benefit to users.
6.3
Explanation of transition to IFRSs
A first-time adopter is required to explain how the transition from its previous GAAP to
IFRSs affected its reported financial position, financial performance and cash flows. [IFRS 1.23].
The IASB decided ‘that such disclosures are essential ... because they help users understand
the effect and implications of the transition to IFRSs and how they need to change their
analytical models to make the best use of information presented using IFRSs.’ [IFRS 1.BC91].
As discussed at 3.5 and 5 above, IFRS 1 offers a wide range of exemptions that a first-time
adopter may elect to apply. However, perhaps surprisingly, the standard does not explicitly
require an entity to disclose which exemptions it has applied and how it applied them. In
the case of, for example, the exemption relating to cumulative translation differences, it
will be rather obvious whether or not an entity has chosen to apply the exemption. In other
cases, users will have to rely on a first-time adopter disclosing those transitional accounting
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policies that are relevant to an understanding of the financial statements. In practice most
first-time adopters voluntarily disclose which IFRS 1 exemptions they elected to apply and
which exceptions apply to them, as is illustrated below by Extract 5.12.
Extract 5.12: Bombardier Inc. (2011)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [extract]
For the fiscal years ended December 31, 2011 and January 31, 2011
36.
ADOPTION OF IFRS [extract]
The Corporation has adopted IFRS effective for its annual consolidated financial statements beginning February 1, 2011.
These consolidated financial statements are the Corporation’s first annual consolidated financial statements prepared in
accordance with IFRS. For all periods up to and including the fiscal year ended January 31, 2011, the Corporation
prepared its consolidated financial statements in accordance with previous Canadian GAAP.
This note explains how the transition from previous Canadian GAAP to IFRS affected the Corporation’s reported
equity as at February 1, 2010 and January 31, 2011, as well as net income, comprehensive income and cash flows
for the fiscal year ended January 31, 2011. References to Canadian GAAP in this note refer to Canadian GAAP
applicable to the Corporation for reporting periods up to and including the fiscal year ended January 31, 2011.
IFRS 1, First-time Adoption of International Financial Reporting Standards, requires a first-time adopter to retrospectively apply all IFRS effective as at the end of its first annual reporting period (December 31, 2011 for the Corporation). IFRS 1
also provides a first-time adopter certain optional exemptions and requires certain mandatory exemptions from full
retrospective application. Most of these exemptions, if elected or mandatory, must be applied as at the beginning of the
required comparative period (the transition date). The Corporation’s transition date to IFRS is February 1, 2010.
The Corporation has not modified the choices made with regard to elections under IFRS 1 or its accounting policies under
IFRS during the fiscal year ended December 31, 2011, except for the additional exemption for retirement benefits to recognize all cumulative actuarial gains and losses as at February 1, 2010 in retained earnings as described in the following section.
EXEMPTIONS FROM FULL RETROSPECTIVE APPLICATION OF IFRS
In accordance with the mandatory exemptions from retrospective application of IFRS, the consolidated statement