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IFRS 1: First time adoption of International Financial Reporting Standards

Date recorded:

The Board discussed submissions received from the Canadian Accounting Standards Board (AcSB) and the Canadian oil and gas industry. The submission of the AcSB addresses IFRS 1 issues of jurisdictions expecting to adopt IFRSs in the near future. The issue raised by the Canadian oil and gas industry relates to practical difficulties encountered by Canadian entities applying full cost accounting under Canadian GAAP.

The issues were presented by AcSB staff and a representative of the Canadian oil and gas industry and propose amendments to IFRS 1 in relation to:

  • Derecognition of financial assets and liabilities
  • Reassessment of accounting under previous GAAP
  • Retrospective restatement of fair values
  • Oil and gas industry issue: Full cost accounting

 

Derecognition of financial assets and liabilities

The AcSB staff recommended that the exception regarding the derecognition requirements of IAS 39 in paragraph 27 of IFRS 1 be revised to refer to transactions that occurred prior to 'the date of transition to IFRSs' in order to address the transitional issues of countries whose transition date to IFRSs is significantly later than 1 January 2004 (such as 1 January 2011 for Canada).

The IASB staff noted that 1 January 2004 is the date the derecognition requirements of IAS 39 became effective and is therefore not related to transition dates. In addition, the IASB staff was of the view that the practical problems raised may be covered by other exemptions in IFRS 1 relating to retrospective application of IFRSs.

The Board agreed and decided not to change paragraph 27 of IFRS 1.

 

Reassessment of accounting under previous GAAP

This proposal relates to jurisdictions that have been gradually phasing-in IFRSs rather than making a one-time complete changeover. Under a phase-in approach, individual IFRSs will be incorporated into national standards before entities are able to claim full compliance with IFRSs.

The AcSB staff proposed precluding reassessment of previous GAAP accounting when that previous GAAP adopted the respective IFRS word for word and provided the same transitional provision as in accordance with IFRS 1 except for the transition date. The AcSB staff noted that in these cases, even though the accounting under previous GAAP is identical to that in accordance with IFRSs, IFRS 1 would require an entity to again reassess that accounting retrospectively.

Some Board members disagreed and stated that the type of previous GAAP should not influence the first-time adoption. Other Board members acknowledged that the efforts of reassessing things twice (e.g. all leasing contracts of an entity) may outweigh the benefit.

Eventually, by majority vote the Board decided to proceed with the proposal. The AcSB staff was asked to redraft the proposal, in particular, to clearly identify the scope of such an amendment. There seemed to be a consensus that any amendment should only apply when the previous GAAP adopted the respective IFRS word for word and that reassessment should 'not be required' but not 'precluded'.

 

Retrospective restatement of fair values

The AcSB staff recommended adding a principle to IFRS 1 prohibiting the retrospective restatement of fair values unless the fair value information was determined or was available as at the date IFRSs required the fair value to be determined. The Board agreed and asked the AcSB staff to draft an amendment for discussion at a future meeting.

 

Oil and gas industry issue: Full cost accounting

The representative of the Canadian oil and gas industry pointed out that this issue appears to be country specific. The representative explained that under full cost accounting, costs incurred during the exploration and evaluation phase are accounted for in a manner substantially consistent with IFRS 6 Exploration for and Evaluation of Mineral Resources. Once it is determined that the exploration has been successful, the accumulated costs are accounted for in a single cost centre for each country and as a single amount. He pointed out that consequently the unit of account under IFRSs is smaller than under full cost accounting and that recreating the historical cost or determining the fair value for each oil and gas asset would be impractical.

The proposal was to allow these entities allocating the existing carrying amount of each cost centre to the oil and gas assets within that cost centre (a so called 'CGU approach').

Most of the discussion was spent on understanding the implications of cost accounting. Finally, the Board decided to proceed with this proposal and asked the AcSB staff to prepare a comprehensive description of the issue.

The Board postponed the decision in which type of project any amendments should be addressed.

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