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FIRST-TIME ADOPTION OF
INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS 1)
1.
BACKGROUND
1.1
When an entity that reports under an accounting framework other than the International
Financial Reporting Standards (IFRS)- say, its own set of national accounting standards---decides
to change to IFRS, it has to comply with certain requirement s (prescribed by IFRS) on conversion
to IFRS; these requirements are outlined in IFRS 1,
First-Time Adoption of [FRS.
This IASB
standard has gained considerable importance in recent years due to the phenomenal popularity of
IFRS globally. Since the IFRS regime makes it incumbent upon all new adherents to IFRS to
compulsorily pass the "IFRS I test" on conversion to IFRS, this standard is becoming more
important by the day as more and more countries of the world are adopting IFRS as their national
accounting standards.
1.2
Michel Prada, chairman of the Technical committee of IOSCO, in his keynote address at a
round table on global accounting convergence sponsored by the Financial Stability Forum and held
in Paris in February 2006, had made the following interesting observations about the global accep–
tance of IFRS vis-a-vis other recognized international standards such as US GAAP:
(a) Out of a worldwide market capitalization totaling over 36 trillion US dollars at the end of
2005, II trillion US dollars correspond to markets where IFRS are either required or per–
mitted and 17 trillion US dollars to markets where US GAAP is the rule; out of the bal–
ance,4 trillion US dollars correspond to Japanese GAAP;
(b) However, in terms of the largest companies included in the coveted "Fortune 500" listing
for that year, 176 prepared their accounts under US GAAP, 81 entities prepared their fi–
nancial statements under Japanese GAAP but 200 conglomerates used IFRS.
Such insightful statistics on global acceptance of IFRS are thought-provoking and lend support to
the fact that the IASB is taking giant strides forward as far more countries are adopting IFRS as
their national accounting standards as opposed to other recognized accounting frameworks.
1.3
The year 2007 proved to be an exceptional year of groundbreaking achievements for the
IASB. A leading international accounting journal described it as a "watershed year" for the IASB
due to the following significant milestones achieved by it during 2007:
(a) Firstly, the November 15, 2007 announcement by the US SEC,
a year sooner than ex–
pected,
to allow foreign private issuers to enter the US capital market using IFRS–
compliant financial statements (without reconciling to US GAAP), which came as a sur–
prise to many in the international financial circles and was considered a historic move on
the part of the US SEC; some even believe that this favorable nod by the US SEC to the
IASB standards undoubtedly paved the way for further acceptance of IFRS globally; and
(b) Secondly, the year "2007 also saw the 108th country sign up to international financial re-
porting standards"
(Accountancy,
January 2008).
1.4 With such extraordinary achievements to its credit the IASB feels confident that more and
more global players will sooner or later convert to IFRS. In fact, major economic players such as
Canada and India have already announced their plans to go the "IFRS route" by 2011. Comment–
ing on how many more countries are expected to adopt IFRS by 2011, Sir David Tweedie , chair–
man of the IASB, remarked, "We reckon by about 2011 there'll be l50-all the major economies"
(Accollntancy,
January 2008).
1.5
IFRS I had assumed great practical significance for many countries when they first adopted
IFRS. In fact, in 2005, when more than 8,000 listed entities in all countries within the European