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First-time Application of IFRS

Date recorded:

The Board received 81 comment letters on ED 1, First-time application of International Financial Reporting Standards. The Board discussed the comment letters received with specific reference to the following:

  • Scope
  • Recognition and measurement (other than financial instruments)
  • Disclosure and effective date

The Board noted that current IAS requires a statement by management for full compliance with IAS. The Board decided to clarify in the final standard that the auditors' report should not be used as a primary determinant of whether an entity is a first time adopter. The final standard will provide clarification that the audit report may be one factor to look at in addition to management's statement of compliance.

Recognition and measurement

The Board decided to retain the option in ED 1 of a SIC 8 approach (without the impracticability exception) and the approach in the standard with exceptions. The Board confirmed that the modified SIC 8 approach would require reference to historical versions of a standard when the transition requirements of the amendments are prospective.

The Board discussed the following issues related to the exceptions in the ED.

Business Combinations

  • An entity should have the choice of restating business combinations under current IFRS or following the exception in the exposure draft. However, if an entity restates a business combination, all combinations after the earliest business combination restated shall also be restated.
  • No change to intangible assets
  • All finance leases shall be restated. That is, there is no exception for finance leases that are acquired in a business combination. The Board requested that the ED be made clear that an entity would first look to the requirements for recognised assets and liabilities and then determine whether unrecognised assets and liabilities should remain unrecognised as a result of this exception.
  • There will be no specific exemption for negative goodwill.
  • The entity should perform an impairment test of its goodwill at the date of transition to IFRS. Therefore, the fair value for all assets and liabilities for cash generating units that have goodwill shall be measured at the date of transition. The Board will not require these assets and liabilities be recorded at fair value. The Board acknowledged that the determination of the fair value of goodwill under the final standard may need to be performed prior to the issuance of the business combinations standard (and amendments to IAS 38). The Board did not discuss providing any guidance on performing this impairment test in the mean time.
  • There shall be no difference in the accounting for equity method goodwill recorded in a joint venture or an associate.
  • Subsequent remeasurement of contingent consideration should not be an adjustment to goodwill, but presumably to income.
  • The Board discussed several drafting issues related to IPR&D;, minority interest, taxes, etc. Other Issues
  • There will be no changes to the event driven revaluation as deemed cost exception. The Board clarified that the use of the revalued amount is a requirement of the standard, and not an option.
  • The Board decided that the corridor amount should be reset to zero for all entities that are not using the modified SIC 8 approach.
  • There were no changes to exception for fixed assets
  • The Board decided that the cumulative translation amount resulting from the translation of financial statements should be reset to zero at the date of transition if the IFRS amount can not be determined.
  • A subsidiary that reports under IFRS to a parent shall use the parent's date of transition when developing its first set of full financial statements. The Board will discuss this issue further at a future Board meeting.
  • There were not changes to the components approach for property.

Disclosure and effective date

The Board reaffirmed its decision that the disclosure requirements in the final standard should cover all comparative information prepared under IFRS. There was concern expressed by certain regulators that will require a second year of comparative information prepared under local GAAP. The Board decided to avoid creating obstacles that may prevent such a presentation for regulatory purposes.

The Board reaffirmed its conclusions on the reconciliations required by paragraph 31 in the ED. The Board agreed to provide illustrative examples of reconciliations in the final standard.

The Board also agreed that an error in the local GAAP financial statements should be accounted for as such and correction in the movement to IFRS should not be allowed.

The Board decided not to change the requirements related to presentation of the cash flow statement or interim financial reports and historical summaries. The board decided to remove the requirement to disclose the denominator of the EPS calculation as part of the first time application of IFRS

The effective dated was moved from 1 January 2003 to 1 January 2004. Early application will be encouraged.

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