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Chapt er
33/
First-Time Adoption of Internal Financial Reporting Standards (IFRS
l)
367
9. RATIONALE BEHIND USING THE "CURRENT VERSION OF IFRS"
9.1 Over time, International Accounting Standards have been revised or amended several times.
In some instances, the current version of IFRS (lAS) is vastly different from the ear lier versions,
which have either been superseded or amended. IFRS I requ ires a first-time adopter to use the cur–
rent versio n of IFRS , without considering the superseded or amended versions.
9.2 By contrast, under Exposure Draft (ED) I, which gave the first-time adopter an optio n to
elect app licat ion of IFRS
as
if
it had always applied [FR S (i.e., from inception ),
the firs t-time
adopter would have had to consider different versions of lAS promulgated ove r a period of time
until the date of adoption of IFRS.
9.3 To comprehend the practica l significance of this change in the requirements, let us exami ne
an illustration .
Example 3
According to a previous version of the Standard relating to property, plant, and equipment (lAS 16 ),
under the allowed alternati ve treatment, when property was revalued, the "fai r value" was its market
value "for existing use.
"
Later this aspe ct of lAS 16 was revised in order to COlifo rm
10
the guidance ill
lAS
22.
Noll' the Standard stipulates that when property, plant, and equipment is revalued, the market
value should be f air value, which is the amount fo r which it call be exchanged between knowledgeable,
willing parties in an arm 's-length transa ction, without restricting the definition offa ir value to market
value fo r "existing use. "
In some cases, this difference in terminology could have a significant impact on the valuation of the
property
if
different versions of the lAS are applied f or different time periods dur ing which the
requirement changed. Consider the case of land and building that is currently being used as fa ctory
building by an entity that is contemplating switching f rom national GMP to IFRS. Accordin g to the
earlier version of lAS 16, the fa ir value would be based on its market value fo r "ex isting use "; under the
revised version of lAS 16, where that restriction has been removed, the market value would be its fai r
value (i.e., "the amount fo r which it can be exchanged between knowledgeable, willing parties in an
arm's-length transaction "}. Thus,
if
the intention of the entity is to convert the fa ctory building at a later
date into a shopping mall, then its market value would be quite diffe rent (compared to a case where
there is no such plan of change in "existing use
")
because it would be a valuation driven by the market
value of the property based on its "intended use" (as opposed
to
its "existing use" ).
10. TRANSITIONAL PROVISIONS IN OTHER IFRS
10.1
Certai n lAS have transitional provisions that are included at the end of those Standards, j ust
before the paragraph(s) relating to the "effective date" of the lAS, and are meant to facilitate tran–
sitio n to the new Standard. In other words, transitional provisions allow entities adopting a new
Standard to deviate from the provisions of other existing Standards, to an extent; usually this takes
place in cases when retrospective appli cation of those Stand ards would make it cumbersome to
apply the new Standard .
10.2
IFRS I recognizes that the transitional provisions in other IFRS apply to changes in account–
ing policies made by an entity that already uses IFRS, and thus it provides that the transitional pro–
visions in other IFRS do not apply to first-time adopters. If IFRS I had not provided th is clarifica–
tion, then there would be confusion as to whether first-time adopters, would need to app ly the tran–
sitional provisions in certain International Accounting Standards (lASs)
11. TARGETED EXEMPTIONS FROM OTHER IFRS
11.1
In a rather surprising change in approac h to exemptions (i.e., from the one taken by the
IASB in ED I ), IFRS I allows a first-time adopter to elect to use one or more targeted exemptions.
In response to ED I, many commentator s disagree d with the IASB' s proposed approach of allow–
ing a first-time adopter either all or none of the exemptions. The IASB found respondents' com–
ments
to
proposals in ED I cogent enough to change its mind on this issue, Thus it aba ndoned the
proposed requirement in ED I that advocated an "a ll-or-nothing" approac h to exemptio ns. Some
believe that continuing with the approac h in ED I might have opened a Pandora' s box for the
IASB , leading to future revision(s) of IFRS I, and also would have caused undue hard ship to first–
time adopters since many of the exemptions are not interdep endent.