IFRS 1 — Subsidiary as a first time adopter

Date recorded:

Subsidiary as a first time adopter - Agenda Paper 5


The Interpretations Committee was asked to consider a new issue addresses the determination of cumulative translation difference (CTD) by a subsidiary that adopts IFRSs later than its parent. More specifically, it addresses the following fact pattern:

  • When the parent adopted IFRSs, it used the exemption provided in IFRS 1.D13 and deemed the CTD for all its foreign operations to be zero at the date of transition to IFRS
  • Some years later, the subsidiary adopts IFRSs and, as permitted by IFRS 1.16(a) measures its assets and liabilities at “the carrying amounts that would be included in the parent’s consolidated financial statements, based on the parent’s date of transition to IFRSs, excluding adjustments made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary”

The submitter asked whether paragraph D16(a) of IFRS 1 would permit the subsidiary to recognise CTD at the amount recognised by its parent (calculated based on the parent’s date of transition to IFRSs).

Staff analysis

The staff assessment was that a subsidiary that adopts IFRS Standards later than its parent is permitted to measure CTD at its date of transition to IFRSs, based on the amount reported to its parent. This is because paragraph D16 specifically mentions assets and liabilities, but not equity. Paragraph D16(a) IFRS 1 is not applicable to components of equity by analogy. This is because paragraph 18 of IFRS 1 explicitly prohibits applying exemptions contained in IFRS 1 by analogy to other items.

Accordingly, the staff conclusion was that when a subsidiary that adopts IFRS Standards later than its parent, in preparing its first IFRS financial statements, the subsidiary applies paragraphs D12-D13 of IFRS 1 to CTD. Applying those paragraphs, at its date of transition to IFRSs, the subsidiary recognises CTD either of zero or on a retrospective basis.

The staff also considered whether a change to IFRS 1 may be warranted to allow an entity to apply the exemption in paragraph D16 to CTD. They concluded that such a change was not needed, on the grounds that:

  • (a) there is no evidence to conclude that the Board intended anything other than what the requirements in paragraph D16 of IFRS 1 say;
  • (b) the existing requirements in IFRS 1 in this respect is not overly burdensome; and
  • (c) relatively few entities would be expected to benefit from any such change.

Staff recommendation

The staff recommended that the IC not add this issue to its agenda. The staff believes that the requirements in IFRS 1 provide an adequate basis for a subsidiary to determine how to measure CTD at its date of transition to IFRSs.

Furthermore, the Staff also recommended that the Board does not amend IFRS 1 to specifically allow an entity to apply paragraph D16 to CTD.


The IC agreed with the Staff’s recommendation, and will discuss whether to propose an amendment to IFRS 1 to address this issue based on the feedback to be received on the tentative agenda decision.

All but two members agreed with the Staff’s technical analysis of the meaning of IFRS 1.D16. The members who disagreed observed that although the wording of IFRS 1.D16 is clear, they doubted whether the words reflect the intention behind providing the relief in the first place, and questioned the principle behind allowing the subsidiary to report the same figures only for assets and liabilities but not for equity. These members observed that not allowing the subsidiary to report the same CTA figure in their own books as that reported to the parent would mean having to keep two sets of accounts which could undermine one of the benefits of adopting IFRS by the subsidiary in the first place. These members also questioned whether the same treatment would apply to other components of equity e.g. those arising from revaluations of PPE. The Staff responded that the difference in the CTA would be a static day-1 difference that will not change in subsequent years. Furthermore, a detailed assessment of how other components of equity should be accounted for in terms of this exemption would require a more fundamental review of IFRS 1. Some other IC members had sympathy for the view that the subsidiary could recognise CTA in its own books at the same amount as that reported to the parent; however, they did not believe that the issue is pervasive enough to warrant an amendment at this point in time.

Related Topics

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.