376 / 488
Chapter
33 /
First-Time Adoption of Internal Financial Reporting Standards ([FRS
I)
365
to "prepa re" an opening balance shee t, thi s does not impl y that the op en ing IFRS bal ance shee t
shou ld also be
p resented
in the entity's fir st IFRS fin anci al sta tements.
5.2 According to the definiti on of the expression "date of tran sition to IFRS" contained in Appen–
di x A to IFRS I, thi s date refers to
the beginning of the earliest period for which an entity presents
full comparative inf ormation under [FRS in its firs t [FRS finan cial sta tements.
Therefore, the date
of tran siti on to IFRS depends on two fact ors: the date of ad option of IFRS and the number of years
of co mparative in form ati on th at the entity decides to present alon g with the financ ial in format ion
o f the year of ado ptio n.
Case Study 1
Facts
Fickle Inc. presented its financial statements under its previous GAAP annually as at December 31 each
year. The most recent financial statements it presented under its previous GAAP were as of Decem–
ber 31, 2004. Fickle Inc. decided to adopt IFRS as of December 3 I, 2005, and to present one-year
comparative information for the year 2004.
Required
When should Fickle Inc. prepare its opening IFRS balance sheet?
Solution
The beginning of the earliest period for which Fickle Inc. should present full comparative informati on
would be January I, 2004. In this case, the opening IFRS balance sheet that the entity would need to
prepare under IFRS I would be as of January 1, 2004.
Alternatively , if Fickle Inc. decided to present two-year comparative information (i.e., for 2004 and
2003), then the beginning of the earliest period for which the entity should present full comparative in–
formation would be January I, 2003. In this case, the opening IFRS balance sheet that Fickle Inc. would
need to prepare under IFRS I would be as of January 1,2003.
6.
ADJUSTMENTS REQUIRED IN PREPARING THE OPENING IFRS BALANCE
SHEET (or in Transition from Previous GAAP to IFRS at the Time of First-Time Adoption)
In prep aring the ope ning IFRS bal ance sheet, an enti ty should apply these four rul es, ex ce pt in
cases where IFRS I gra nts targeted exemptio ns and prohibi ts retrospective applicatio n:
(I)
Recogn ize
all assets and liab iliti es whose recogniti on is required under IFRS ;
(2) Derecognize
items as assets or liabilities if IFRSs do not permit suc h rec ogniti on ;
(3) Reclassify
items that it recogni sed under pr evi ous GAAP as one type of asset, liability, or
compone nt of equ ity , but are a di fferent type of asset, liability, or component o f equity un–
der IFRSs;
and
(4) Measu re
all recogni sed assets and liabilities according to principles ens hrined in IFRS.
Case Study 2
Facts
Exuberance Corp. presented its financial statements under the national GAAP of "Strangeland" (coun–
try) until 2004.
It
adopted IFRS from 2005 and is required to prepare an opening IFRS balance sheet as
at January 1,2004. In preparing the IFRS opening balance sheet Exuberance Corp. noted
Under its previous GAAP, Exuberance Corp. had deferred advertising costs of $1,000,000 and
had classified proposed dividends of $500,000 as a current liability.
• It had not made a provision for warranty of $200,000 in the financial statements presented under
previous GAAP since the concept of "constructive obligation" was not recognised under its
previous GAAP.
In arriving at the amount to be capitalized as part of costs necessary to bring an asset to its
working condition, Exuberance Corp. had not included professional fees of $300,000 paid to
architects at the time when the building it currently occupies as its head office was being
constructed.