AIISAA’s FAQs on IFRS 1 – An Indian Perspective IFRS
1: First time adoption of International Financial Reporting Standards By CA Manish Iyer Professional Affiliate B. Com, FCA, ISA, DipIFR https://d.yimg.com/kq/groups/17276896/687098163/name/AIISAA's%20FAQs%20on%20IFRS%201%20Downloads%203.pdf
FAQs on IFRS 1 – An Indian Perspective IFRS 1 “First-time Adoption of International Financial Reporting Standards”
1. To which financial statements is IFRS 1 applicable?
IFRS 1 is applicable to the following financial statements: a. First annual financial statement in which the entity adopts International Financial Reporting Standards, by an explicit and unreserved statement of compliance with International Financial Reporting Standards. b. Each interim financial report that the entity presents as part of its first annual financial statements in which the entity adopts International Financial Reporting Standards by an explicit and unreserved statement of compliance with International Financial Reporting Standards.
2. Institute of Chartered Accountants of India has announced that all entities listed in India have to prepare and present their financial statements as per IFRS for accounting periods beginning on or after 1 April 2011. What period would the first annual financial statements cover?
The first annual financial statements under International Financial Reporting Standards for an entity whose accounting period begins on 1 April would cover 1 April, 2011 to 31 March 2012. For an entity whose accounting period begins on 1 January, the first annual financial statements under International Financial Reporting Standards would be 1 January 2012 to 31 December 2012.
3. What is the first IFRS reporting period for entities in India as per Institute of Chartered Accountants of India’s announcement?
The First IFRS reporting period for entities in India having accounting period beginning on 1 April would be 1 April 2011 to 30 June 2011. For an entity whose accounting period begins on 1 January, the first IFRS reporting period would be 1 January 2012 to 31 March 2012.
4. From what date should an entity in India have its financials as per International Financial Reporting Standards?
As per Institute of Chartered Accountants of India’s announcement , an entity in India should have its financials as per IFRS on 1 April 2010 which is the date of transition to International Financial Reporting Standards for entities whose accounting periods begin on 1 April. The entity is required to prepare and present opening IFRS statement of financial position as at the date of transition to International Financial Reporting Standards.
5. Whether an entity that presented financial statements in the previous year containing an explicit and unreserved statement of compliance with IFRS and containing a qualified audit report would be First Time Adopter of IFRS?
An entity that presented financial statements in the previous year containing an explicit and unreserved statement of compliance with IFRS would not be a First time adopter of IFRS even though it contains a qualified audit report.
6. Can an entity change its accounting policy during the periods presented in its first IFRS financial statements?
The entity cannot change its accounting policy during the periods presented in its first IFRS financial statements. For an entity whose accounting period begins on 1 April, the periods presented would be 1 April 2010 to 31 March 2011 and 1 April 2011 to 31 March 2012. No voluntary change in accounting policies is permitted during the period 1 April 2010 to 31 March 2012.
7. Which International Financial Reporting Standards are to be considered for framing accounting policies to be adopted in an entity’s first IFRS financial statements whose accounting period begins on 1 April?
The entity should adopt accounting policies that are in compliance with each IFRS effective as at 30 June 2011, if the entity prepares and presents an interim financial report or 31 March 2012.
8. How the differences in accounting policies of previous GAAP and IFRS should be accounted for?
The adjustments due to changes in accounting policies from previous GAAP to International Financial Reporting Standards at the date of transition to International Financial Reporting Standards should be adjusted directly in retained earnings or a specific reserve such as IFRS transition reserve.
9. Whether an entity whose accounting period begins on 1 April 2010 is required to comply with International Financial Reporting Standards from the inception / origination of asset / liability?
An entity need not make retrospective adjustments for complying with all IFRS from the inception / origination of asset / liability. An entity may opt for the following exemptions:
a. Not applying IFRS 3 to business combinations that occurred before 1 April 2010
b. Taking fair value at the date of transition or revaluation done before transition date as deemed cost for property, plant & equipment, intangible assets and investment property
c. Recognise all actuarial gains and losses that are unrecognised at 1 April 2010 even though the entity follows corridor approach for recognizing actuarial gains and losses
d. Ignore unrecognised cumulative translation differences at the date of transition
e. Need not separate liability and equity component of a compound financial instrument where the liability component is not outstanding as at 1 April 2010
f. Take the values of assets and liabilities of the subsidiary stated in the parent’s consolidated financial statements after removing consolidation adjustments where the subsidiary adopts IFRS later than parent
g. Take the values of assets and liabilities of the subsidiary stated in its separate financial statements if the parent adopts IFRS later than subsidiary
h. Designate a financial asset as available for sale or at Fair value through profit or loss and a financial liability as at fair value through profit or loss at 1 April 2010
i. Not apply IFRS 2 to equity instruments that vested before 1 April 2010
j. Apply transitional provisions in IFRS 4 to Insurance contracts at 1 April 2010
k. Not add to or deduct from the cost of the asset for changes in existing decommissioning, restoration and similar liabilities as specified in IFRIC 1 that occurred before 1 April 2010.
l. Determine as at 1 April 2010 whether an arrangement contains a lease on the basis of the facts and circumstances existing on 1 April 2010
m. Take transaction value as fair value of financial assets and financial liabilities
n. Apply transitional provisions in IFRIC 12 to Service Concession Arrangements at 1 April 2010
IFRS 1 prohibits retrospective application in the following cases:
a. Not apply derecognition requirements of IAS 39 to transactions that resulted in derecognition under previous GAAP and that occurred before 1 January 2004
b. Measure all derivatives at fair value at 1 April 2010
c. Designate derivative as hedge instruments from 1 April 2010.
d. Attribute to the owners of the parent and to the controlling interests even if this results in the non-controlling interests having a deficit balance
e. Account for changes in parent’s controlling interest in a subsidiary that does not result in loss of control as equity transaction
10. An entity revalued its buildings on 1 April 2008 from Rs.100 lac to Rs.500 lac. The useful life at that time was assessed 50 years for building. As on 1 April 2010, the entity’s transition date, the entity estimates the remaining useful life to be 40 years. Can the entity take the depreciated value of Rs.500 lac or should it get its buildings fair valued as on 1 April 2010?
The entity can take Rs.480 lac (Rs.500 lac – Rs.20 lac) as deemed cost on 1 April 2010. However, Rs.500 lac should have been the fair value of the building as on 1 April 2008.
11. Whether an estimate made under previous GAAP that changes after 1 April 2010 for an entity whose accounting period begins on 1 April be adjusted in the Statement of Financial Position as at 1 April 2010?
The adjustments to be made to the values of assets and liabilities at 1 April, 2010 reflect the changes in accounting policies. No adjustments are required for changes in estimates.
12. How many Statements of Financial Position, Statements of Comprehensive Income, Statements of Cash flows, Statements of Changes in Equity are to be presented in an entity’s first IFRS financial statements for an entity whose accounting period begins on 1 April?
An entity’s first IFRS financial statements should contain:
a. Three statements of financial position (i) As at 31 March 2012 (ii) As at 31 March 2011 (iii) As at 1 April 2010
b. Two statements of comprehensive income (i) For the period ended on 31 March 2012 (ii) For the period ended on 31 March 2011
c. Two statements of cash flows (i) For the period ended on 31 March 2012 (ii) For the period ended on 31 March 2011
d. Two statements of changes in equity (i) For the period ended on 31 March 2012 (ii) For the period ended on 31 March 2011
13. Whether an entity that adopts IFRS for the first time whose accounting period begins on 1 April is required to explain the adjustments made to its financials due to transition to International Financial Reporting Standards?
IFRS 1 requires the following reconciliation in that entity’s financial statements for the period ended on 31 March 2012:
(i) Reconciliation of equity reported under International Financial Reporting Standards and previous GAAP for a. 1 April 2010 b. 31 March 2011
(ii) Reconciliation of total comprehensive income under International Financial Reporting Standards with that reported under previous GAAP for the period 1 April 2010 to 31 March 2011.
(iii) Explanation of material adjustments in the statement of cash flows IFRS 1 requires reconciliations in that entity’s interim financial reports presented during the period 1 April 2011 to 31 March 2012 between International Financial Reporting Standards and Previous GAAP.
The reconciliation required for a quarterly interim financial report as at 30 September 2011 are: (i) Reconciliation of equity as at 30 September 2011 between that reported under International Financial Reporting Standards and that reported under previous GAAP
(ii) Reconciliation of total comprehensive income for the period ended 30 September 2011 and 30 September 2010 between that reported under International Financial Reporting Standards and that reported under previous GAAP
(iii) Reconciliation of total comprehensive income for the year to date period ended 30 September 2011 and 30 September 2010 between that reported under International Financial Reporting Standards and that reported under previous GAAP
(iv) Explanation of material adjustments to statement of cash flows for the period ended 30 September 2011 and 30 September 2010 between that reported under International Financial Reporting Standards and that reported under previous GAAP.
(v) Explanation of material adjustments to statement of cash flows for the year to date period ended 30 September 2011 and 30 September 2010
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