First-Time Application of IFRS

Date recorded:

- Consideration of Comments on ED 1


Under the general principles in ED 1, First-Time Application of International Financial Reporting Standards, a first-time adopter would apply the transition provisions of IAS 39 (except for the provision for hedge accounting in paragraph 24 and appendix C of ED 1). Some Board members are concerned that the wording in IAS 39.172(a) prohibits derivatives that are part of derecognition transactions from being recorded in the transition to IAS 39. That is, these derivatives would remain off balance sheet. This was clearly not the intention of the Standard and several members expressed concern over this interpretation.

Nevertheless, the IASB decided to amend the transition provisions of IAS 39 to make it 'crystal clear' that these derivatives should be put on the balance sheet at the date of implementation of IAS 39. The Board noted that this consequential amendment to IAS 39 may be amended during the IAS 32/39 improvements project to require a full retrospective approach.

Special Purpose Entities

The staff noted that the comment letters did not provide any new arguments for changing the current inclusion (or lack of scope exception) of SPEs in the general requirements of ED 1. Therefore, the provisions of SIC 12 for retrospective application (by reference to IAS 8.46) shall be applied.

Transaction Costs

The staff believes that no exception should be made for transaction costs as these amounts are either immaterial or entities should be able to make a reasonable estimation.

Compound Instrument

The staff addressed a concern related to a compound instrument where at the date of transition the liability component was gone. ED 1 would currently require a retrospective split of that amount between retained earnings and equity. The staff noted that such a split was not required in this limited fact pattern. Therefore, the entire fair value should be charged to equity.

Embedded Derivatives

No changes to the current requirements and exceptions are proposed. The Board reiterated the IAS 39 requirement that if an embedded exists, but it cannot be individually measured, then the entire contract should be recorded at fair value.

Available-for-Sale Financial Assets

No changes to the existing requirements were proposed.

Debt/Equity Classification

No changes to the existing requirements were proposed.


No changes to the existing requirements were proposed.


No changes to the existing requirements were proposed.

Date of Transition to IFRSs for Some Subsidiaries

The Board discussed the current exception from the scope of ED 1 related to subsidiaries that report IFRS numbers to a parent, but then subsequently issue IFRS statements to the public for the first time with an unreserved statement of compliance (paragraph 5). The concern is that the IASB does not want to create a requirement for an entity to keep two separate sets of IFRS financial statements.

The staff proposed keeping the scope exception, but rewording it so that the subsidiary would adopt the parent's date of transition as its own. The Board also decided to make this scope exception optional. The Board decided to drop the requirement for agreement from all minority shareholders to use the parent's date of transition as its own from the final standard (paragraph 5(b)).

Other FTA Issues

The Board stated that it plans to readdress the necessity of having the requirement that if an entity chooses one exception, it must choose them all (paragraph 14).

The Board decided to provide an exception for intangible assets similar to paragraph 17 for tangible fixed assets. Therefore, if cost can be established (and therefore outside of the measurement exception) and the mark-to-market requirements in IAS 38 have been met, the revalued amount of this intangible may be carried forward as deemed cost.

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