IFRS 1 – Prospective application provisions for first-time adopters (new)
In August 2011 the IASB received a request to amend IFRS 1 First-time Adoption of International Financial Reporting Standards to allow first-time adopters of IFRSs the same prospective application provisions in certain IFRSs as has been afforded to existing preparers of IFRS financial statements. The submitter noted that while some of the recent Annual Improvements to IFRSs required prospective application for existing IFRS preparers, no corresponding amendments were made to IFRS 1 for the benefit of first-time adopters. The submitter suggested that similar transition guidance should be included in IFRS 1 and that such amendments should be made as soon as possible to permit entities adopting IFRSs in 2011 to take advantage of any such amendments.
The staff believed that one issue in particular, relating to an amendment made to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance as part of Annual Improvements issued in April 2008 could be addressed more quickly via a separate amendment to IFRS 1 (i.e. to allow first-time adopters to apply paragraph 10A of IAS 20 prospectively). Government loans with a below-market rate of interest have historically been measured at cost on initial recognition. Paragraph 10A requires them to be measured at fair value on initial recognition in accordance with IFRS 9 Financial Instruments. Retrospective application by first-time adopters will therefore require entities to determine the fair value of liabilities as at the date the loan was originated. Many such loans have historically been measured at cost in accordance with previous GAAP. Paragraph 52 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors states that it is impracticable to estimate a fair value that is not based on an observable price or observable inputs retrospectively. As such, the staff believed that measuring the fair value of government loans with a below-market rate of interest at a past date is impracticable. The staff made an initial assessment of the merits of the submission and asked the Committee for its views to inform the Board's discussion of the issue.
The majority of the Committee members did not have any issue with the staff proposals. Several Committee members questioned why a special exception should be made. The staff emphasised the impracticability aspect.