First-time Adoption of International Financial Reporting Standards (IFRS) outlines an organization's steps to prepare its first set of consolidated financial statements using IFRSs as a foundation. In addition, a limited number of IFRS exemptions are granted by the International Financial Reporting Standards (IFRS) after its first IFRS reporting period.
After 1 July 2009, an entity's first IFRS financial statements will be subject to a revised version of Item 1 of the International Financial Reporting Standards (IFRS). Just read this article to learn more about IFRS 1.
Understanding First TimeAdoption
There are two types of companies: first-time adopters, and second-time adopters, both of which are companies that have adopted IFRSs for the first time. To be deemed a first-time adopter, an entity must have made its internal financial statements compliant with IFRS in the prior year but not made those financial statements available to shareholders or other parties such as investors or creditors. Financial statements prepared by international financial reporting standards (IFRS) will not be required to be submitted to the Financial Accounting Standards Board (FASB).
What Are The Requirements Of IFRS 1?
An organization needs to meet the IFRS 1 standards while moving from national GAAP to the international standard. IFRS financial statements and any interim reports prepared under IAS 34, "Interim financial reporting," are covered by this standard. Additionally, entities that have applied for the first time more than once are covered by this provision (i.e.,repeated first-time applications). An essential part of IFRS reporting is the application of all applicable IFRSs at the date of the report. There are, however, several optional and mandatory exceptions to the need for retroactive applicability.
IFR 1's fundamental principle is to apply all Standards in place as of a company's last balance sheet or first financial statement reporting date retroactively.
According to IFRS, businesses should:
● Set up the first set of financial reports.
● On the day of the changeover, prepare an initia lbalance sheet.
● Account for all periods covered by the original financial statements using IFRS-compliant accounting procedures applied retroactively.
● Check whether you need to take advantage of any possible exclusions from retroactive applicability.
● Retrospective application of the IFRS should include the four required exclusions.
● The move to IFRS necessitates extensive disclosures.
Exclusions from IFRS 1
While the International Accounting Standards Board (IASB) has allowed for certain voluntary exemptions for the retrospective implementation of IFRS 1, it has also acknowledged the costs and consequences of retroactively applying all relevant IFRS. Accordingly, in certain particular instances, the business may do a cost-benefit analysis to decide whether or not IFRS should be applied retroactively under IFRS 1.
Those standards that the IASB deems would be too difficult or expensive to implement retroactively would be excluded from the voluntary exemptions. Any, all, or no exemptions may be invoked as a last resort.
What Should Accounting Policies Be Considered As per IFRS?
Several Standards allow firms to choose from a variety of accounting practices. A company's initial balance sheet accounting practices must be carefully considered, and the influence on current and future periods must be adequately appreciated. Firms should take advantage of the opportunity to analyze accounting procedures from a new viewpoint.
The Bottom Line
The "First-time Adoption of International Financial Reporting Standards" (IFRS 1) sets out the steps that must be taken by a company when using IFRSs for the first time to produce its general-purpose financial statements. As a result, transitioning to IFRS is made more accessible by this standard.