1. Connolly – International Financial Accounting and Reporting – 4 th Edition CHAPTER 3 FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

2. Connolly – International Financial Accounting and Reporting – 4 th Edition 3.1 INTRODUCTION Globalisation of capital markets High volume of cross-border capital flows and a growing number of foreign direct investments via mergers and acquisitions Need for the harmonisation of different accounting practices Acceptance that a single set of global accounting, reporting and disclosure standards is required Prior research on making the transition to IASs/IFRSs suggests that it may have great practical significance

3. Connolly – International Financial Accounting and Reporting – 4 th Edition 3.2 THE LANGUAGE OF INTERNATIONAL ACCOUNTING STANDARDS Potential benefits  Investors  Companies  Accounting firms  Tax authorities Achieving a common language is fraught with difficulties  Different purposes  Different legal systems  Nationalism  Needs  Strength of accounting profession

4. Connolly – International Financial Accounting and Reporting – 4 th Edition Accounting terminology – UK GAAP v IASs/IFRSs UK and IrelandIASs/IFRSs Balance sheetStatement of financial position Balance sheet date / Reporting dateEnd of reporting period After the balance sheet dateAfter the reporting period Fixed assetsNon-current assets Tangible fixed assetsProperty, plant and equipment StockInventory DebtorsReceivables CreditorsPayables Shareholders’ funds } Capital and reserves } Equity Cash flow statementStatement of cash flows Profit and loss account (P&L) Statement of profit or loss and other comprehensive income (SPLOCI) Turnover / salesRevenue Recognised in the income statementRecognised in profit or loss Recognised in equity Recognised in OCI TaxationIncome tax

5. Connolly – International Financial Accounting and Reporting – 4 th Edition 3.3 IFRS 1 FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS IFRS 1 First-time Adoption of International Financial Reporting Standards Objective and Scope Sets out how an entity should make the transition to IASs/IFRSs Applies when an entity adopts the complete package of IASs/IFRSs for the first time Seeks to address the demand of investors to have transparent information that is comparable over all periods presented Applies to each interim financial report that an entity presents under IAS 34 Interim Financial Reporting (See Chapter 34)

6. Connolly – International Financial Accounting and Reporting – 4 th Edition IFRS 1 – Key points Same accounting policies used in all periods presented One year of comparative IAS/IFRS information required If historical summaries presented, these do not have to be restated from previous GAAP Clear labelling essential and disclosure of main differences Limited exemptions where the cost of complying would be likely to exceed the benefits to users Disclosures required to explain how the transition from previous GAAP to IASs/IFRSs affected the entity’s reported financial position, financial performance and cash flows

7. Connolly – International Financial Accounting and Reporting – 4 th Edition IFRS 1 – KEY QUESTIONS 1.Who is a first-time adopter?  An entity that makes an explicit and unreserved statement that its GPFS comply with IASs/IFRSs 2.Can an entity be a first-time adopter if, in the preceding year, it has prepared IFRS financial statements for internal management use?  Yes... 3.What if, last year, an entity said it complied with selected, but not all, IFRS, or it included in its previous GAAP financial statements a reconciliation of selected figures to IFRS figures?  It will still qualify as a first-time adopter

8. Connolly – International Financial Accounting and Reporting – 4 th Edition IFRS 1 – KEY QUESTIONS 4.When an entity adopts IFRS for the first time in its annual financial statements, what is it required to do?  Explicit and unreserved statement of compliance  Same accounting policies  Restate opening statement of financial position 5.What adjustments are required to move from previous GAAP to IFRS?  Derecognition  Recognition  Reclassification  Measurement

9. Connolly – International Financial Accounting and Reporting – 4 th Edition IFRS 1 – KEY QUESTIONS 6.What are the exceptions to the basic measurement principle in IFRS 1?  Optional exceptions  Mandatory exceptions 7.How will the change to IFRS affect an entity’s ongoing disclosures?  Typically these will be broadened/expanded 8.If a first-time adopter wants to disclose selected financial information for periods before the date of the opening IFRS statement of financial position, is it required to restate that information to IFRS as well?  No...

10. Connolly – International Financial Accounting and Reporting – 4 th Edition IFRS 1 – KEY QUESTIONS 9.What disclosures are a first-time adopter required to make when switching to IFRS? (See Chapter 3, Examples 3.1 and 3.2)  Reconciliation of equity  Explanation of material adjustments  Reconciliation of total comprehensive income  Explanations if the entity has availed of any of the specific recognition and measurement exemptions permitted under IFRS 1 10.If an entity is going to adopt IFRS for the first time in its annual financial statements for the year ended 31 December 20X5, is any disclosure required in its financial statements prior to the 31 December 20X5 statements?  Yes…

11. Connolly – International Financial Accounting and Reporting – 4 th Edition IFRS 1 – KEY QUESTIONS 11.An entity may become a first-time adopter earlier than or later than its subsidiary, associate or joint venture investee. In these cases, how is IFRS 1 applied?  If the subsidiary has adopted IFRS in its entity-only financial statements before the group...  If the group adopts IFRS before the subsidiary in its entity-only financial statements...  If the group adopts IFRS before the parent in its entity- only financial statements...  If the group adopts IFRS before its associate or joint venture in its entity-only financial statements...