The Board discussed a proposal developed by an advisory group of the French Conseil National de la Comptabilite (CNC). The proposal is to replace SIC 8 with a new standard applicable to a company using IFRSs for the first time as its primary basis of accounting.

The proposals contain three key definitions:

• Date of adoption - the beginning of the financial year when an enterprise publishes financial statements described as using IFRS for the first time as the primary accounting basis;
• Date of first application - the beginning of the earliest year presented in the first set of published IFRS financial statements; and
• Other GAAP financial statements - statements prepared using a primary basis of accounting different from IFRS.

During discussion, the Board indicated tentative agreement with the following approach:

Which periods to present?

The number of years of comparative information required is a matter for the individual country regulators to decide. IAS 1 requires, at a minimum, comparative information for the previous financial year.

Which IFRS?

In general, IFRSs applicable at the date of adoption should be used, with transactions occurring before the date of first application restated using the standards effective at the date of adoption.

If a new standard became effective between the date of application and the date of adoption, IFRSs applicable at the date of adoption would generally still be used from the date of application, even if the requirements are applicable on a prospective basis from the effective date -- though IASB may decide to reach a different decision in the case of a few Standards.

Recognition of assets and liabilities

Assets and liabilities recognised under other GAAP that do not meet IFRS definitions and recognition criteria should be derecognised (with the exception of business combinations, which are to be subject to separate decisions set out below). Assets and liabilities recognised under IFRS but not other GAAP should be recognised, with two possible exceptions (to be discussed at a future IASB meeting): intangible assets and the financial instrument items detailed in IAS 39.172 (h) (securitisations, transfers, and other derecognition transactions).

Measurement

The measurement of assets and liabilities at the date of first application is to be based on restatement of the initial cost (gross carrying amount) and subsequent adjustments of the initial cost (such as depreciation and impairment losses) to arrive at the net carrying amount at the date of first application under IFRS. However, if the initial cost of an asset or a liability cannot be determined without undue cost and effort, remeasure the asset or the liability at its fair value at date of first application; this value will be the deemed cost of the asset or the liability for any subsequent measurement purposes.

Business combinations

For business combinations, it is proposed that there be no restatement for a business combination that occurred before the date of first application. Hence, for example, the classification of any business combinations that occurred before the date of first application and the purchase price allocation to assets and liabilities are deemed to have been properly determined. Intangible elements acquired in a business combination recognised as intangible assets under other GAAP but do not meet IFRS definitions and recognition criteria are, in fact, goodwill and should be reclassified as such. The IFRS principles for the amortisation of goodwill and the recognition of negative goodwill as income will apply to any remaining goodwill (negative goodwill) existing at the date of first application, on a prospective basis as from the date of first application. In addition, the recoverable amount of any remaining goodwill in the opening balance sheet should be estimated under IAS 36 and impairment losses recognised at the date of first application accordingly.

The tentative decision for the treatment of business combinations that occurred before the date of first application does negate the fact that, at the date of first application, the opening balance sheet should include all (but only those) assets and liabilities existing at the date of first application that meet the IFRS definitions and recognition criteria (subject to the two possible exceptions mentioned above). Any adjustment to the other GAAP financial statements for the recognition/derecognition and measurement of those assets and liabilities at the date of first application, whether or not they arose from a business combination, should be accounted for against retained earnings.

Financial instruments

Regarding financial instruments, it was proposed that the principles of IAS 39 should apply and that the IAS 39 transitional provisions should be retained. Initial measurement of financial instruments should follow IAS 39. If measurement is at fair value, then it would be fair value at the date of first application. If measurement is at amortised cost, then it would be based on information that was available when the contract was negotiated or issued. Where split accounting is required by IAS 32, go back to the information available at issue/contract date. If it is not possible to separate out embedded derivatives, then the entire instrument should be classified as a trading instrument. Hedging relationships are to be judged against the IAS 39 tests at the date of first application looking forward.

Other matters

It was tentatively agreed to remove certain transition provisions in IAS 17, IAS 19, and IAS 37 but to retain the transitional provisions of IAS 21. It was proposed to clarify that the lease classification occurs at the date of first application, based on information available when the contract was entered into. Also, if an enterprise applies the corridor approach to defined benefit employee obligations, the corridor is reset to zero at the date of first application.

Although difficult to regulate, the use of hindsight will be restricted to information available at the date of first application. Information available subsequent to the date of first application should not be taken into account.

In the first set of IFRS financial statements, a reconciliation should be prepared between equity under other GAAP and equity under IFRS. The Board stated that it was necessary to have a 'road map' of what had been put through equity as a result of the conversion, together with a reasonable amount of detail in relation to what adjustments had been needed. If measurement at fair value is made at the date of first application because it was not possible to restate measurements under IFRS without undue cost and effort, , further disclosures would be required.

A draft of an Exposure Draft is due to be presented to the January 2002 meeting of the Board.