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First-Time Application of IFRS

Date recorded:

The Board considered how an entity that is applying IFRS for the first time would apply the provisions in IAS 39. The Board tentatively decided:

  • Not to change its prior tentative decision to require that the derecognition provisions of IAS 39 (as revised) be applied retrospectively in a first-time application (FTA) situation.
  • To rewrite the hedging transition provisions of IAS 39 so that they encompass the related questions and answers developed by the IAS 39 Implementation Guidance Committee and include the rewritten provisions in the FTA standard.
  • Not to establish special FTA provisions for embedded derivatives; therefore, at the time of first-time application of IFRS, embedded derivatives must be split out or, alternatively, the hybrid instrument in which they are embedded must be accounted for at fair value in its entirety.
  • An 'undue cost and effort' transition exception for financial instruments will not be included.
  • For financial assets remeasured to fair value at time of FTA and classified as Available for Sale, cumulative fair value changes should reported in retained earnings, not as a separate component of equity. When the financial asset is subsequently sold, only those gains or losses that arose after the date of transition to IAS will be 'recycled' and reported in net profit or loss.
The Board also discussed several non-IAS 39 issues. The Board tentatively decided the following:
  • The First-Time Application Standard will apply when there has been no explicit prior claim of full compliance with IAS or IFRS.
  • If, prior to first-time application of IFRS, an entity did occasional revaluations of certain property, plant, and equipment using price indexes rather than measurement at fair value as would be required by IAS 16 if a revaluation policy were adopted, the amounts revalued by index can be regarded as deemed cost for the purpose of first-time application of IFRS.
  • If IFRS are first applied in 2005, the entity's 2005 financial statements must include (a) a reconciliation of income and expense items for 2004 from previous GAAP to IFRS and (b) a reconciliation of equity at 1 January 2004 and also at 31 December 2004 from previous GAAP to IFRS.
  • The Board reversed an earlier decision to require, for a business combination that took place prior to FTA, that the lessee recognise assets and liabilities under leases that meet the IAS 17 definition of a finance lease that were not recognised under the entity's previous GAAP.
  • If the financial statements of a parent or a group follow IFRS and the parent acquires a new subsidiary that has not, prior to the acquisition, followed IFRS, this is not a First Time Application situation in the consolidated or parent's financial statements, though it would be FTA in the new subsidiary's separate financial statements.

Correction list for hyphenation

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