First application of international financial reporting standards. First application of ifrs ifrs 1 first application of ifrs
The objective of IFRS 1 is to ensure that an entity provides, in its first IFRS financial statements, as well as in its interim financial statements for a portion of the period covered by those financial statements, such high quality information that:
is transparent to users and allows comparisons for all periods presented in the reporting;
sets the proper starting point for accounting in accordance with IFRS;
can be obtained at a cost that does not exceed the benefits acquired by users.
An entity is required to apply IFRS 1:
in its first financial statements prepared in accordance with IFRS;
in all of those interim financial statements, if any, that it presents in accordance with IAS 34 Interim Financial Statements for the portion of the period covered by the first IFRS financial statements.
The first financial statements of the company, prepared in accordance with IFRS , Is the first annual financial statements in which this company adopts IFRS by express and unconditional declaration of compliance with IFRS made in these financial statements.
Financial statements are considered prepared for the first time in accordance with IFRS if the company:
1) presented its financial statements for the last previous period:
in accordance with national requirements that do not comply with IFRS requirements in all respects;
in accordance with IFRS in all respects, except that these financial statements did not contain an express and unconditional statement of their compliance with IFRS;
including an explicit statement of compliance with some, but not all, IFRS;
in accordance with national requirements that do not comply with IFRS, using some separate IFRSs to account for those items for which there were no national requirements;
in accordance with national requirements, with reconciliation of individual amounts with similar amounts received in accordance with IFRS;
2) prepared financial statements in accordance with IFRS only for internal use, not presenting it to the owners of this company or any other external users;
3) prepared a package of financial statements in accordance with IFRS for consolidation purposes, without preparing a complete set of financial statements that meet the definition of IAS 1 “Presentation of Financial Statements”;
4) did not submit financial statements for previous periods.
IFRS 1 does not apply in cases where the company:
ceases to present financial statements in accordance with national requirements, which it previously submitted, along with another set of financial statements containing an express and unconditional statement of compliance with IFRS;
in the preceding year, presented financial statements in accordance with national requirements, and these financial statements contained an express and unconditional statement of compliance with IFRS;
in the previous year, provided such financial statements that contained an express and unconditional statement of compliance with IFRS, even if the auditors of the company presented a report with a qualification on these financial statements.
An entity must prepare and present an opening IFRS statement of financial position at the date of transition to IFRS. This is the starting point for preparing the financial statements of an entity in accordance with IFRS.
IFRS 1 provides specific transition rules to IFRS in the following areas: business combination, fair value or revalued value as the historical cost of property, plant and equipment and investment property, accumulated exchange differences, employee benefits, combined financial instruments, assets and liabilities of subsidiaries and associated companies, joint ventures. IFRS 1 prohibits retrospective application of standards for derecognition of financial assets and liabilities, hedge accounting and accounting estimates.
IFRS 1 requires the first IFRS financial statements to be prepared in accordance with all the standards in force at the end of its first reporting period. An entity must use the same accounting policies in its first IFRS financial statements for all periods for which information is presented.
In the opening statement of financial position prepared in accordance with IFRS, it is necessary to: recognize all assets and liabilities subject to recognition in accordance with IFRS; not recognize an item as an asset or liability if IFRS prohibits its recognition; reclassify those items that were recognized in accordance with the previous national accounting rules as assets, liabilities or components of equity of one type, but which, in accordance with IFRS, are classified as assets, liabilities or components of equity; apply IFRS when measuring all recognized assets and liabilities.
An entity must apply the most recent version of each of the standards in force at the end of its first IFRS reporting period. The same version of the standards should be applied in preparing the opening statement of financial position in accordance with IFRS and other information presented in the first financial statements under IFRS.
In order to comply with IAS 1, the first financial statements under IFRS must contain at least three statements of financial position, two statements of comprehensive income, two separate income statements (if any), two statements of cash flows and two statements of changes in equity, along with related notes, including comparative information. In the reporting, it is necessary to make a disclosure about how the transition from the previous national accounting rules to IFRS affected the financial position, financial results of operations and cash flows of the company.
Test assignments for topic 4
1. Is IAS 1 applied to financial statements by banks and insurance companies?
2. Which of the following statements is not included in the complete set of financial statements in accordance with IAS 1?
a) statement of comprehensive income;
b) report on environmental protection;
c) statement of cash flows.
4. Can interim financial statements include a complete set of financial statements as described in IAS 1?
5. Which of the following statements is not included in the interim financial statements?
a) a statement of financial position;
b) selective explanatory notes;
c) report on value added.
6. What is related to cash equivalents under IAS 7?
a) funds in current accounts;
b) cash on hand;
c) short-term, highly liquid investments, easily convertible into a certain amount of cash.
7. What type of company activity is characterized by the following definition: "... is the acquisition and sale of long-term assets and other investments not related to cash equivalents"?
a) operating room;
b) investment;
c) financial.
8. When should a company report separately information on an operating segment?
a) if its revenue from sales to external customers, as well as from transactions with other segments, is at least 10% of the total revenue (internal and external) of all operating segments;
b) if its revenue from sales to external customers is at least 10% of the total revenue (internal and external) of all operating segments;
c) if its revenue from operations with other segments is at least 5% of the total revenue of all operating segments.
9. How is the result of a change in an accounting estimate recognized in the financial statements?
a) prospectively, by including in profit or loss of the current or future period;
b) retrospectively, by adjusting the opening balance of each affected component of equity;
c) retrospectively, by recalculating comparative amounts.
10. What rule does not apply when preparing an opening IFRS statement of financial position?
a) apply IFRS when measuring all recognized assets and liabilities;
b) recognize an item as an asset or liability if IFRS does not allow its recognition;
c) reclassify those items that were recognized in accordance with the previous national accounting rules as assets, liabilities or components of equity of one type, but which, in accordance with IFRS, belong to another type of assets, liabilities or components of equity.
Arranging for the first application of IFRS 1
The main objective of IFRS 1 is to prepare the first financial statements based on the results of the year's work, as well as interim statements within the financial year, containing high-quality information about the organization that meets the following requirements: - transparency and understandability for users;
- - comparability with the financial statements of previous reporting periods;
- - providing an appropriate starting point for those companies that prepare financial statements in accordance with IFRS for the first time;
- - the comparability of benefits and costs for the preparation and presentation of reports according to international standards.
IFRS 1 sets out the requirements for companies applying IFRS for the first time - when the company's statements for the first time contain a clear and unconditional statement of compliance with IFRS.
In general, IFRS 1 requires an entity to comply with each IFRS that is effective at the reporting date when submitting its first IFRS financial statements. Specifically, IFRS 1 requires an entity to do the following when preparing an opening IFRS balance sheet, which serves as a starting point for accounting under IFRS:
- 1. to carry out the recognition of all assets and liabilities, the recognition of which is required under IFRS;
- 2. not to recognize items as assets or liabilities if the IFRS does not allow such recognition;
- 3. change the classification of items that have been recognized in accordance with previously applicable national rules as one type of asset, liability or component of equity in accordance with IFRS;
- 4. Apply IFRS when measuring all recognized assets and liabilities.
IFRS 1 provides for a number of exemptions from these requirements in certain areas where the costs of meeting the requirements may outweigh the benefits to users.
IFRS 1 also prohibits retrospective application of IFRSs in some areas, in particular where retrospective application would require management to exercise professional judgment about past conditions after the outcome of a particular transaction is known.
IFRS 1 requires disclosures that explain how the transition from previously applicable national rules to IFRS affected the company's reported financial condition, financial results of operations and cash flows.
The needs of first-time adopters of IFRS are taken into account when adopting new IFRS and amending existing ones. In the event that these needs differ from the needs of existing users, additions and changes are made to IFRS 1. Accordingly, IFRS 1 is subject to continuous changes.
An entity must apply IFRS 1:
- 1. when preparing its first financial statements in accordance with IFRS;
- 2. in the preparation of each interim financial statements, if any, that are presented in accordance with IAS 32 for the part of the period covered by its first IFRS financial statements.
The company's first IFRS financial statements are the first annual financial statements prepared by the company in accordance with IFRS and containing a clear and unconditional statement of compliance with IFRS.
IFRS financial statements are the first IFRS financial statements if, for example, a company:
- 1.has submitted its most recent previous financial statements:
- · In accordance with national requirements that do not comply with IFRS in all aspects;
- · In accordance with IFRS in all aspects, except that the financial statements do not contain a clear and unconditional statement of compliance with IFRS;
- · Contains a clear and unconditional statement of compliance with some, but not all, IFRS;
- · In accordance with national requirements that do not comply with IFRS, using some separate IFRS to account for items for which there are no national requirements; or
- · In accordance with national requirements and containing reconciliation of certain amounts and amounts determined in accordance with IFRS;
- 2. prepared financial statements in accordance with IFRS for internal use only, not making them available to the company's owners or external users;
- 3. prepared a set of statements in accordance with IFRS for consolidation purposes without preparing a complete set of financial statements as set forth in IAS 1; or
- 4. did not present financial statements for prior periods.
IFRS 1 does not apply when, for example, a company:
- 1. stops presenting financial statements in accordance with national requirements, having previously submitted them, as well as a second set of financial statements containing a clear and unconditional statement of compliance with IFRS;
- 2. in the previous year, presented financial statements in accordance with national requirements and financial statements containing a clear and unconditional statement of compliance with IFRS; or
- 3.presented financial statements in the previous year containing a clear and unqualified statement of compliance with IFRS, even if the auditors based their auditor's report on these qualified financial statements
IFRS 1 does not apply to changes in accounting policies by an entity that already applies IFRS. Such changes fall under:
- 1.requirements for changes in accounting policies established by IAS 8;
- 2. specific transitional requirements established in other IFRS.
When preparing financial statements for the first time using the provisions of IFRS 1 "First-time Adoption of International Financial Reporting Standards", an entity must consider a number of mandatory requirements. First, when forming indicators of financial statements, the transitional provisions contained in other standards should not be used. Second, given that IFRS 1 proposes nine exemptions that can be implemented in the preparation of financial statements, it is imperative to comply with three of them, and for the remaining six, implementation is voluntary.
In order for the data of the previous reporting period (usually the financial year) to be presented in the financial statements in accordance with IFRS, it is necessary to carry out work to recalculate the information previously provided by the organization in the statements compiled in accordance with national rules and requirements. These data should be comparable with the reporting indicators obtained taking into account international methodological approaches, including those contained in IFRS 1. Therefore, despite some individual simplifications of the standard on the first application of IFRS, the process of transition to IFRS and the preparation of the first reporting is difficult ... However, when an entity decides to transition to IFRSs, or if the transition to international standards is a prerequisite, the fulfillment of which will allow solving important strategic objectives, it is necessary, according to IFRS 1, to fulfill the following conditions:
- - determine which financial statements of the company will be the first in accordance with IFRS;
- - prepare an opening IFRS balance sheet at the date of transition;
- - choose an accounting policy that complies with IFRS and apply it retrospectively for all periods presented in the first financial statements under IFRS;
- - decide on the application of any of the six possible voluntary exceptions exempting from retrospective application of the standards;
- - apply three mandatory exceptions when retrospective application of standards is not permitted;
- - to disclose in the financial statements detailed information explaining the specifics of the company's transition to IFRS.
In general, the date of transition to IFRS is the date on which comparative data for the previous or several previous reporting periods will be disclosed. For example, if an entity, preparing financial statements in accordance with IFRS, presents comparative figures for 2004, then the date of transition to IFRS is January 1, 2004. When such data are also presented for 2003, the transition date is January 1, 2003 g.
In practical work, companies may encounter a situation when, between the date of transition to IFRS and the date of initial reporting in accordance with international standards, there have been changes in the methods of calculating individual indicators. New methods should be presented in the reporting as changes in accounting policies. However, it would be difficult for external users to review and analyze such financial statements due to a lack of understanding of why there were changes in accounting policies during the initial application of IFRS. Therefore, IFRS 1 allows companies to voluntarily use the standards as amended at the date of transition to IFRSs when calculating financial statements when they first apply them, regardless of whether there have been changes in them at the date of financial statements in accordance with international standards or not.
The next condition for the transition of the organization to IFRS is the preparation of the opening balance sheet at the date of transition to IFRS, which is a difficult and very time-consuming work. IFRS 1 provides a list of tasks to be accomplished at this stage. 1. Recognition of those assets and liabilities of the entity that are in accordance with the provisions of IFRS. For example, according to IAS 38 Intangible Assets, the conditions for recognizing an intangible asset acquired externally or created internally is that the following requirements are met:
- - receiving in the future economic benefits as a result of the use of this asset;
- - reliability of the asset valuation.
IAS 38 "Intangible Assets" also prohibits the classification of objects created within the company as intangible assets: business reputation, trade marks, publishing rights, customer lists, etc.
If assets and liabilities have never been recognized in the financial statements, but must be recognized under IFRS, they are included in its content.
- 2. Reclassification of assets, liabilities and capital of the organization based on the methodological approaches and requirements of IFRS. For example:
- - IFRS 10 "Events after the reporting date" does not provide an opportunity to consider the accrued dividends based on the results of work for the reporting period as a liability at the reporting date. These amounts are included in retained earnings as presented in the opening IFRS balance sheet, income statement and statement of changes in equity;
- - when in the financial statements it is necessary to present information on segments (different types of products, services, as well as different geographic regions). If such information is not determined by national accounting and reporting rules, it is also necessary to separate such information, carry out appropriate calculations and change the indicators of financial statements to meet the requirements of IFRS;
- - preparation of consolidated financial statements in accordance with international standards is based on the provisions of IFRS 27 "Consolidated financial statements and accounting for investments in subsidiaries", which discloses the reporting methods of a group of organizations controlled by one parent organization, as well as the procedure for reflecting investments in affiliated companies.
- 3. Refinement of the valuation of assets, liabilities and capital presented in the opening balance sheet in accordance with IFRS, based on the methods used in international accounting practice.
To clarify the assessment of the balance sheet indicators and other forms of financial reporting in accordance with IFRS, it is necessary to use the following norms:
- - IFRS 2 "Inventories", revaluing inventories at the lower of the acquisition cost (FIFO, average or alternative LIFO method) and net realizable value (excluding possible selling costs);
- - IAS 39 “Financial Instruments: Recognition and Measurement” by revaluing trading financial assets, financial assets available for sale, derivative financial assets, trading financial liabilities, derivative financial liabilities at fair value;
- - IAS 40 "Investments in real estate", revaluing investments in real estate at fair value;
- - IFRS 16 "Fixed Assets", revising the useful lives of assets and justifying them without regard to the useful lives established by the Government of the Russian Federation for the purpose of taxation of profits;
- - IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” by creating reserves that are not created in national accounting practice and using the discounting requirement;
- - IAS 36 “Impairment of Assets” by revaluing the assets of an entity for an amount not exceeding its recoverable amount if their carrying amount exceeds the amount that will be recovered through the use or sale of these assets. Moreover, the revaluation amount should be presented in the balance sheet and disclosed in the notes to the financial statements as an impairment loss;
- - IFRS 12 “Income Taxes”, calculating deferred tax liabilities and deferred tax assets based on the requirements of this standard;
- - IFRS 29 “Financial reporting in a hyperinflationary environment”, which is used to calculate the indicators of assets and liabilities as of January 1, 2003, since before this period the Republic of Kazakhstan was considered as a country with a hyperinflationary economy. The historical cost of reporting in such accounting periods should be restated for inflation.
After clarifying the assessment of assets and liabilities presented under the articles of the opening balance sheet, deviations from the amounts previously presented in the statements are calculated.
They are accounted for as an integral part of the capital of the organization and are reflected in the balance sheet at the date of transition to IFRS under retained earnings or another item in the capital group for which this is permissible.
4. Since the balance sheet provides information for several reporting periods, items of the opening balance sheet should be formed based on the same accounting policies.
Moreover, if in the future the methods and methods of accounting, enshrined in the accounting policy of the organization for accounting purposes, will be revised, the indicators of the opening balance sheet should also be recalculated for comparability purposes.
Opening balance sheet according to IFRS.
The company must prepare an opening IFRS balance sheet at the date of transition to IFRS. This document serves as a starting point for accounting in accordance with IFRS. A company is not required to present its opening IFRS balance sheet in its first IFRS financial statements.
Accounting policy.
An entity must use the same accounting policies in preparing its opening IFRS balance sheet and throughout all periods presented in its first IFRS financial statements. This accounting policy must be consistent with each IFRS that is effective at the reporting date of its first IFRS financial statements.
An entity should not apply other versions of IFRSs that were in effect at earlier dates. An entity may apply new IFRSs that have not yet become mandatory if early adoption is permitted by its provisions. If the new IFRS is not yet mandatory but allows early adoption, an entity is permitted (but not required) to apply that IFRS in its first IFRS financial statements.
The transitional provisions in other IFRSs apply to changes in accounting policies by an entity that already uses IFRSs; they do not apply to a first-time adopter upon transition to those standards.
The accounting policies used by the company in preparing the opening IFRS balance sheet may differ from those used at the same date in accordance with previously applicable national rules.
The corresponding adjustments arise from events and transactions prior to the date of transition to IFRSs. Accordingly, an entity must account for these adjustments directly in retained earnings (or, if appropriate, in another line item in equity) at the date of transition to IFRS. IFRS 1 establishes two categories of exceptions to the principle of mandatory compliance of the opening IFRS balance sheet with each IFRS:
- 1.exceptions from some requirements of other IFRS;
- 2. prohibition of retrospective application of some provisions of other IFRS.
The Company may elect to measure property, plant and equipment at the date of transition to IFRS at their fair value and use that fair value as the estimated cost at that date.
A first-time adopter may use a revaluation of property, plant and equipment in accordance with previously applicable national rules on the date of transition to IFRSs or a later date as the estimated value at the date of the revaluation if the corresponding values \u200b\u200bat the date of the revaluation are broadly comparable to:
- 1. fair value;
- 2. cost or amortized cost in accordance with IFRS, adjusted to reflect, for example, changes in a general or specific price index.
These options are also applicable to:
- 1. investment in real estate, if the company decides to use the cost model in IAS 40 "Investments in real estate";
- 2. intangible assets that correspond to:
- · The recognition criteria established by IAS 38 Intangible Assets (including a reliable estimate of actual costs)
- · The criteria in IAS 38 for revaluation (including the existence of an active market).
An entity should not use these options for other assets or liabilities.
A first-time adopter may have estimated the cost of some or all of its assets and liabilities in accordance with previously applicable national rules by measuring them at fair value at a specific date due to an event, such as a privatization or open issue of new shares.
You may use such event-driven fair value measurements as the estimated cost in accordance with IFRS at the date of such measurement.
In accordance with IAS 19, an entity is allowed to use the corridor method, which provides for the option not to recognize certain actuarial gains and losses. Retrospective application of this method requires the entity to separate the cumulative actuarial gains and losses from the commencement of the plan to the date of transition to IFRS into a recognized portion and an unrecognized portion.
However, a first-time adopter may recognize all cumulative actuarial gains and losses at the date of transition to IFRSs, even if it uses the corridor approach for later actuarial gains and losses. If a first-time adopter uses this option, it should apply it to all retirement benefit plans. The Company is entitled to disclose the amounts as determined for each reporting period prospectively from the date of transition.
Cumulative currency translation adjustment.
IAS 21 requires an entity to:
- 1.Classify certain exchange differences as a separate component of equity; and
- 2. on disposal of a foreign operation, carry forward the cumulative translation adjustment for that foreign operation (including the related hedging gains and losses) to the income statement (in profit or loss on disposal).
However, a first-time adopter is not required to comply with these cumulative translation adjustments that existed at the date of transition to IFRSs. If a first-time adopter uses this exemption:
- 1. cumulative gains and losses from currency translation for all foreign operations are assumed to be zero at the date of transition to IFRS;
- 2. the gain or loss on subsequent disposal of the foreign operation must exclude exchange differences that arise prior to the date of transition to IFRSs, but must include later exchange differences.
Combined financial instruments.
IAS 32 requires an entity to analyze a compound financial instrument in terms of equity and debt, based on the circumstances that existed when the instrument was invented. If the debt component is extinguished, retrospective application of IAS 32 requires identifying two elements of equity separately.
The first element is included in retained earnings and represents the cumulative interest on the debt component.
The second element is the original fractional component. However, under IFRS 1, a first-time adopter does not need to identify the two separately if the debt is extinguished at the date of transition to IFRS.
Assets and liabilities of subsidiaries, associates and joint ventures. If a subsidiary first adopts IFRS after its parent, the subsidiary must measure its assets and liabilities by either:
- 1.the carrying amount that would have been included in the consolidated financial statements of the parent company at the date of transition of the parent company to IFRS, if no adjustments were made in the consolidation procedures and to account for the effects of a business combination in which the parent company acquired the subsidiary;
- 2. the carrying amount required by other provisions of IFRS 1 at the date of transition of the subsidiary to IFRS. These book values \u200b\u200bmay differ from those described in (1):
- · When the exceptions in IFRS 1 lead to valuation results that depend on the date of transition to IFRSs;
- · When the accounting policies applied in preparing the financial statements of a subsidiary differ from those for the consolidated financial statements.
- 3. A similar choice is possible for an associate or joint venture that first adopts IFRS after an entity with significant influence or joint control over it.
However, if an entity first adopts IFRS at a later date than its subsidiary (associate or joint venture), the entity must measure the assets and liabilities of the subsidiary (associate or joint venture) at the same carrying amount as the subsidiary (associate or joint venture). enterprise), excluding consolidation adjustments.
Similarly, if a parent first applies IFRS to prepare its separate financial statements earlier or later than when preparing its consolidated financial statements, it must measure its assets and liabilities at the same cost in both sets of financial statements, except for adjustments in consolidation.
Reflection of previously recognized financial instruments.
IAS 39 permits a financial asset to be recognized on initial recognition as available-for-sale, or a financial instrument (subject to certain criteria) to be recognized as a financial asset or financial liability at fair value through profit or loss.
Notwithstanding this requirement, exceptions apply in the following circumstances:
- 1.the company is permitted to keep accounting for available-for-sale at the date of transition to IFRS;
- 2.An entity that presents its first IFRS financial statements for an annual period beginning on or after 1 September 2006, at the date of transition to IFRSs, is permitted to record a financial asset or financial liability at fair value through profit or loss, provided that the asset or liability meets the criteria in IAS 39 at that date;
- 3.A company that presents its first IFRS financial statements for an annual period beginning on or after January 1, 2006, or before September 1, 2006, at the date of transition to IFRS, is allowed to record a financial asset or financial liability at fair value through profit or loss , provided that at that date the asset or liability meets the criteria in IAS 39. When the date of transition to IFRSs is before September 1, 2005, such accounting is not required to be completed before September 1, 2005, and there may also be reflects financial assets and financial liabilities recognized between the date of transition to IFRS and 1 September 2005.
- 4.A company that presents its first IFRS financial statements for an annual period beginning before 1 January 2006 is permitted at the beginning of its first IFRS reporting period to record at fair value a financial asset or financial liability (through profit or loss) subject to such reflection in accordance with IAS 39.
When an entity's first IFRS reporting period begins before September 1, 2005, such recognition is not required to be completed before September 1, 2005, but financial assets and financial liabilities recognized between the beginning of that period and September 1, 2005 may also be included.
If an entity restates comparative information in accordance with IAS 39, it must restate that information for financial assets, financial liabilities or a group of financial assets, financial liabilities (or both) at the beginning of its first IFRS reporting period.
Such restatement of comparative information should only be made if the recognized items or groups would have met the criteria for such recognition at the date of transition to IFRSs or, if acquired after the date of transition to IFRSs, would have met the criteria in IAS 39 at the date of initial recognition.
5. an entity that presents its first IFRS financial statements for an annual period beginning before September 1, 2006 - financial assets and financial liabilities that the entity has recognized at fair value in profit or loss and that were previously accounted for as a hedged item in hedging transactions at fair value should be removed from these transactions at the same time that they were recognized at fair value in profit or loss.
Share-based payment transactions.
A first-time adopter is encouraged, but not required to apply IFRS 2 to equity instruments granted after 7 November 2002 that were invested before the later of two dates:
- (1) the dates of transition to IFRSs and
- (2) January 1, 2005.
However, if a first-time adopter decides to apply IFRS 2 to such equity instruments, it can only do so if the entity has disclosed the fair value of those equity instruments determined at the measurement date in accordance with IFRS. 2.
For all grants of equity instruments for which IFRS 2 has not been applied (such as equity instruments granted before 7 November 2002), a first-time adopter must nevertheless disclose the information required by IFRS ) 2.
An entity is not required to apply IFRS 2 if the change occurs before the later of two dates:
- (1) the dates of transition to IFRSs and
- (2) January 1, 2005.
A first-time adopter is encouraged, but not required to apply IFRS 2 to liabilities arising from share-based payment transactions settled before the date of transition to IFRSs.
A first-time adopter is also encouraged but not required to apply IFRS 2 to liabilities that were settled prior to 1 January 2005.
Insurance contracts.
A first-time adopter may apply the transitional provisions of IFRS 4. IFRS 4 restricts changes in accounting policies for insurance contracts, including changes by first-time adopters.
Changes in existing reserves, restoration liabilities or similar liabilities included in the cost of property, plant and equipment.
IFRIC 1 requires specified changes to add or subtract a provision, a restoration obligation or a similar liability from the cost of the asset to which it is associated; the adjusted amortized cost of the asset is then amortized prospectively over its remaining useful life.
A first-time adopter is not required to comply with these requirements for changes in such liabilities that occurred before the date of transition to IFRSs.
If a first-time adopter uses this exemption, it must:
- 1. measure the liability as at the date of transition to IFRS in accordance with IAS 37;
- 2. estimate the amount that would be included in the cost of the related asset when the liability first incurred by discounting the liability to that date using the best estimate of the discount rate adjusted for actual risk that would apply to the liability during the coming period;
- 3. Calculate the amortization expense on this cost as at the date of transition to IFRS using the current estimated useful life of the asset and the depreciation policy applied in accordance with IFRS.
A first-time adopter may apply the transitional provisions of IFRIC 4. Accordingly, a first-time adopter may determine whether an arrangement in force at the date of transition to IFRSs provides for a lease that takes into account the facts and circumstances that existed at that date.
The best basis for the fair value of a financial instrument at initial recognition is the transaction price, unless:
- - the fair value of the instrument is substantiated by comparison with other observable current market transactions in the same instrument (ie, without modification or “repackaging”): or
- - a valuation technique is used whose variables include data from observable markets.
The subsequent measurement of the financial asset or financial liability, and the subsequent recognition of gains and losses, shall be in accordance with the requirements of IFRS 1.
Application on initial recognition may result in no gain or loss recognized on initial recognition of a financial asset or financial liability.
In this case, IAS 39 requires profit or loss to be recognized after initial recognition only to the extent that this is due to a change in a factor (including time) that market participants would take into account in setting a price.
IFRS 1 prohibits retrospective application of certain provisions of other IFRSs related to:
- 1. derecognition of financial assets and liabilities;
- 2. hedge accounting;
- 3. estimated estimates;
- 4. assets classified as held for sale and discontinued operations.
Derecognition of financial assets and financial liabilities.
If a first-time adopter has derecognized non-derivative financial assets or non-derivative financial liabilities in accordance with previously applicable national rules as a result of a transition that occurred before 1 January 2004, it does not need to recognize those assets and liabilities under IFRS (unless they are not to be recognized as a result of a later transaction or event).
An entity may apply the derecognition requirements of IAS 39 retrospectively from any date, provided that the required information was obtained during the initial accounting for these transactions.
Hedge accounting.
In accordance with the requirements of IAS 39, at the date of transition to IFRS, an entity must:
- 1. measure all derivatives at fair value;
- 2. Eliminate all deferred losses and gains on derivatives that were accounted for in accordance with previously applicable national rules as if they were assets or liabilities.
An entity shall not reflect on its opening IFRS balance sheet hedging relationships that do not meet the requirements for hedge accounting under IAS 39.
However, if an entity has accounted for a net position as a hedged item in accordance with previously applicable national rules, it is entitled to record a separate item within that net position as a hedged item under IFRS, provided that this is done no later than the date of transition to IFRS.
If, prior to the date of transition to IFRSs, an entity accounted for the transaction as a hedge, but the hedge does not meet the conditions for hedge accounting in IAS 39, the entity applies IAS 39 to discontinue hedge accounting.
Transactions entered into prior to the date of transition to IFRSs should not be retrospectively accounted for as hedges.
Estimated estimates.
Estimates in accordance with IFRSs at the date of transition to IFRSs should be consistent with estimates made at the same date in accordance with previously applicable national rules (after adjustments to reflect any differences in accounting policies). The exceptions are cases when the fact of an error can be objectively confirmed.
The company may receive information after the date of transition to IFRS about the estimates it has made in accordance with previously applicable national rules. IAS 10 requires an entity to treat this information in the same way as non-adjusting events after the reporting date.
The same method for accounting estimates is also applied to the comparative period presented in the company's first IFRS financial statements. References to the date of transition to IFRSs are replaced by references to the end of the comparative period.
Assets classified as held for sale and discontinued operations IFRS 5 requires prospective application to non-current assets (or disposal groups) that meet the criteria for classification as held for sale and to operations that meet the criteria for classification as discontinued operations after entry into force of IFRS.
IFRS 5 permits the requirements of IFRS 1 to be applied to all non-current assets (or disposal groups) that meet the criteria for classification as held for sale and to activities that meet the criteria for classification as a discontinued operation after any date prior to the entry of IFRS into effective, provided that the valuation values \u200b\u200band other information required to apply IFRS 1 were obtained at the time the criteria were initially met.
"International accounting", 2011, N 35
Currently, in connection with the transition of an increasing number of Russian enterprises to the International Financial Reporting Standards (IFRS), the experience of the first application of IFRS and the preparation of the first reporting is quite in demand. This article reveals the main issues, considers the mandatory exceptions and optional exemptions for the first application of IFRS, as well as the disclosure requirements in the first financial statements prepared in accordance with IFRS.
The problems of the transition to IFRS of Russian companies and the preparation of the first reporting in accordance with international standards are becoming more and more urgent, since the reporting prepared in accordance with IFRS is of a higher quality, transparent, and understandable for users. Using financial statements prepared in accordance with IFRS, enterprises can attract financing from private investors, banks, and enter international capital markets.
However, the process of drawing up the first financial statements under IFRS, which in the future will allow you to take advantage of the listed advantages, is rather complicated. The problems that arise during the transition to IFRS and the preparation of the first reporting include:
- organization of the process of preparing the first reporting (internally or with the involvement of third-party organizations);
- preparation of accounting policies and chart of accounts in accordance with IFRS;
- determination of the perimeter of consolidation of reporting;
- automation of the formation of the first reporting and the choice of the software environment in which the reporting will be formed, and other problems.
It is necessary to dwell in more detail on the main provisions of IFRS 1 "First application of international financial reporting standards".
The objective of IFRS 1 is to ensure the high quality of information presented in the first annual or interim financial statements. At the same time, the first reporting, which will serve as a starting point for subsequent reporting prepared in accordance with IFRS, must be transparent and comparable.
The process of drawing up the first IFRS statements is quite costly and requires the involvement of significant time, financial and labor resources. In this context, one of the objectives of IFRS 1 is to reduce the cost of preparing financial statements, as well as to facilitate the process of preparing the first financial statements.
Important to understanding IFRS 1 is the definition of concepts such as the first reporting period and the date of transition to IFRS. The first reporting period is the most recent reporting period covered by the first reporting. The transition date refers to the beginning of the earliest period for which an entity presents comparative information in its first financial statements.
For example, if Alpha plans to submit its first financial statements for 2011, then the date of transition to IFRS will be 01/01/2010, the reporting date will be 12/31/2011, and 2011 will be the first reporting period. For 2010, the company must provide comparative information to the reporting prepared for the reporting 2011.
International Financial Reporting Standard (IFRS) 1 requires financial reporting for at least 2 years. The minimum set of reporting forms will include an opening statement of financial position of the company at the date of transition, a set of statements for the first reporting period in the form of a statement of financial position, a statement of comprehensive income, cash flows and a statement of capital flows, as well as comparative financial information minimum for one period. When preparing the first reporting, the requirements of end users for the composition of reporting forms should be taken into account. For example, some exchanges require companies that place shares on them to provide comparative information for the two periods preceding the reporting period.
It should be noted that the process of preparing the first reporting can be approached in several ways. for example, in a relatively short period of time, prepare all the reporting forms required by IFRS, or break down the preparation of the first reporting into stages that are stretched out in time. The choice of one or another option depends on the scale of the company's activities, the availability of resources for preparing financial statements, as well as the terms that the management of the company or its owners have set for the preparation of the first financial statements under IFRS.
It is worth noting that the requirements of IFRS 1 apply to both the annual statements and the interim financial statements for the period covered by the first financial statements.
In some cases, Russian companies violate the IFRS 1 requirements for the presentation of comparative information and prepare a preliminary version of the reporting under IAS 34 "Interim Financial Reporting", which is then published. Companies are taking this step in order to minimize the costs of preparing financial statements in accordance with IFRS.
A first-time IFRS reporting entity must include an explicit and unconditional statement of compliance with all IFRSs in its notes to financial statements. The inclusion of this statement in the reporting will be decisive when users decide whether the reporting of this company is prepared in accordance with IFRS.
for example, Beta decided to prepare the first IFRS statements for 2011, prepared the required set of reporting forms, but in the statement of compliance with IFRS noted full compliance with all standards except IFRS 5 "Non-current assets held for sale, and Discontinued Operations and IAS 38 Intangible Assets. When preparing financial statements for 2012, Beta has prepared financial statements that meet all IFRSs, and indicated this in its statement in the statements. In this case, the first reporting of Beta will be the reporting for 2012.
If a company declares full and unconditional compliance with all IFRS in its first financial statements, but does not actually comply with the requirements of a certain standard, this will be noted by the auditor in the report (for example, a modified auditor's report will be issued). In this case, a clear and unconditional statement of compliance with IFRS will prevail over an actual departure from one of the standards in deciding whether the company is adopting IFRS for the first time.
If a company compiled the first IFRS statements only for internal purposes, for example, for management needs of management, and did not transfer them to the owners of the enterprise or external users, then, despite full compliance with all IFRS, these statements cannot be the first statements prepared in accordance with IFRS, and the entity will not be considered to have converted to IFRS.
A first-time adopter must take the following steps in its opening statement of financial position at the date of transition under IFRS 1:
- recognize all assets and liabilities that are required to be recognized under IFRS;
- derecognise assets or liabilities that were recognized in accordance with previous Russian Accounting Standards (RAS), but which cannot be recognized in accordance with IFRS;
- to reclassify items of assets or liabilities recognized under previous accounting standards that are differently classified in accordance with IFRS;
- apply IFRS to measure recognized assets and liabilities.
When recognizing assets and liabilities in the opening balance sheet in accordance with IFRS, in contrast to RAS, it is necessary to take into account:
- on the balance sheet fixed assets received in a finance lease and are not accounted for in the Russian balance sheet;
- defined benefit assets and liabilities;
- reserves for the decommissioning of fixed assets;
- vacation reserves.
When considering assets and liabilities that need to be derecognized in the financial statements, the opening balance sheet may not reflect intangible assets that do not meet the recognition criteria under IFRS, but are reflected in accordance with RAS. These may include, inter alia, internally generated trademarks; research costs that have yielded a positive result (in IFRS, these costs are written off to expenses of the current period).
A number of assets and liabilities recognized in accordance with RAS must be reclassified upon transition to IFRS. Thus, the item "Fixed assets under RAS" may include investment property, which, according to IFRS, should be separated into a separate line in the statement of financial position. Fixed assets held for sale can be reclassified. If the recognition criteria under IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations" are met, these fixed assets should be reported on a separate line in the opening balance sheet.
When compiling the opening balance sheet, the receivables must also be reclassified from current assets in terms of advances outstanding at the date of transfer for purchase, construction of fixed assets into non-current assets.
In accounts payable, the long-term debt in the part of the debt due in the next year (from long-term debt to short-term debt) must be reclassified. The finance lease payable must also be separated from payables and shown separately. Income tax liabilities, both receivable and payable, should also be reflected in a separate line item.
Property, plant and equipment revaluation reserves may be reclassified to retained earnings.
According to IFRS requirements, assets and liabilities subject to recognition in the opening balance sheet must be revalued. Thus, inventories should be recorded at the lower of the acquisition cost or net realizable value.
Real estate investments can be measured at fair value. In terms of fixed assets, the formation of the initial cost may be revised due to the difference between the requirements of IFRS and RAS, the depreciation amount was revised due to different useful lives in RAS and IFRS.
The approaches to calculating deferred tax liabilities in IFRS and RAS differ, which will also affect their amount presented in the opening balance sheet. Deferred tax liabilities must be calculated in accordance with IAS 12 Income Taxes.
The issue of drawing up accounting policies deserves a separate consideration. The accounting policy of an enterprise adopting IFRS for the first time should be consistent and uniform in preparing the opening balance sheet and reporting forms for the first reporting period and comparative periods. Accounting policies must comply with all IFRSs in effect at the end of the first reporting period.
If the transition to IFRS and the preparation of the first financial statements take place gradually and from the moment of compilation of the opening balance sheet or statements for the comparative period, significant changes in international reporting standards may occur, then the enterprise may apply separate standards that have not yet entered into force. This should be stated in the notes to the statements. If a complete set of the first financial statements under IFRS is immediately formed, then the company must retrospectively reflect all the provisions of the applicable standards in force at the reporting date, i.e. these provisions will be retrospectively applied to the opening balance sheet, to the statements of the first reporting period and to comparative information to the statements.
An entity making an IFRS accounting policy from scratch can review the IFRS standards that will come into effect in the future, as well as the expected changes in IFRS. Early adoption of some standards may help avoid changes in accounting policies and retrospective restatements of financial statements in accordance with the changed accounting policies.
First-time adopters of IFRSs may change their accounting policies, and these entities are not subject to the restrictions on voluntary changes in accounting policies in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
Some IFRSs contain specific guidance on transitional conditions, these guidance can only be applied by enterprises already applying IFRS, and they are not applicable to the first financial statements under IFRS, except as provided in Appendices B - E of IFRS 1.
Accounting policies under IFRS may differ from those of a Russian company that uses RAS. Adjustments related to the difference in accounting policies under RAS and IFRS are reflected in the opening balance sheet in retained earnings.
International Financial Reporting Standard (IFRS) 1 specifies the accounting estimates for assets and liabilities. If changes in estimates occurred after the date of transition, but before the reporting date of the first reporting, then these changes should be accounted for prospectively, from the date of change of such estimates. Estimates made in RAS do not change when a Russian company prepares IFRS statements (for example, the amount of accrued depreciation on fixed assets). An estimate that was prepared in accordance with RAS can be changed upon transition to IFRS only if the accounting method under IFRS differs from the accounting method for an asset or a liability under RAS (for example, a change in the depreciation method); if the estimate according to RAS was erroneous and cannot be accepted for accounting under IFRS (omission or distortion of information when calculating a particular reporting indicator).
When preparing reports, Russian enterprises may not calculate reserves for vacations, for pension plans, for a decrease in the cost of inventories. When preparing financial statements in accordance with IFRS, these estimates must be made, but based on the conditions (for example, market rates, exchange rates) that existed at a certain reporting date (the date of transition to IFRS, the end of the first reporting period and the comparative reporting period).
In order to reduce the cost of preparing the first financial statements in IFRS 1, there are mandatory exceptions from the retrospective application of IFRS and optional exemptions from the application of some provisions of IFRS. The optional exemptions apply on a voluntary basis by an entity preparing its first IFRS statements. These exceptions and exemptions are provided for by IFRS in order to prevent the cost of preparing the first financial statements under IFRS from exceeding the benefits that an enterprise can receive from the first financial statements.
There are five mandatory exceptions to retrospective application of IFRSs in IFRS 1:
- in relation to derecognition of financial assets and financial liabilities;
- for hedge accounting;
- non-controlling interest of shareholders;
- in terms of classification and measurement of financial assets;
- for embedded derivatives.
The first mandatory exception concerns financial assets and liabilities from transactions entered into on or after 01/01/2004. For example, if certain financial assets or liabilities were derecognized in RAS prior to 01.01.2004, then the requirements of IFRS 9 "Financial Instruments" on derecognition of these financial assets or liabilities should not be applied retrospectively to them. Transactions entered into after 01.01.2004 are reviewed in accordance with IFRS 9, and if it is found that derecognition of financial assets or liabilities would be contrary to IFRS, such assets and liabilities are reversed in the opening balance sheet.
The hedging exemption is intended to prevent new information from being used to achieve the desired outcome for existing hedged transactions. At the date of transition, a first-time reporting entity must measure hedging derivatives at fair value; exclude deferred gains and losses in IFRS statements that are presented in RAS statements; determine whether hedges entered into prior to the transition date meet the criteria specified in IFRS (for example, the requirement to document information about hedging transactions), and adjust from the transition date, if necessary, the carrying amount of assets and liabilities previously reported under RAS.
In the first IFRS statements, the entity in the statement of comprehensive income must prospectively reflect the division of comprehensive income into non-controlling interests and controlling shareholders. The requirements of IAS 27 Consolidated and Separate Financial Statements (see paragraphs 30, 31, 34 - 37) apply prospectively to accounting for changes in the parent's ownership interest in a subsidiary, both resulting and loss of control over a subsidiary.
By the time of transition to IFRS, the company must determine whether the financial asset (previously accounted for in accordance with RAS) meets the requirements for measuring at amortized cost under IFRS (the business model is to hold assets to collect payment flows under the contract, payments under the contract are only payments under principal and interest on the principal debt).
With regard to the classification of financial assets, IFRS 1 requires assessing whether the embedded financial instrument should be separated from the host contract and accounted for as a separate derivative (either at the date of inception of the contract or at the date of revaluation of the derivative).
International Financial Reporting Standard (IFRS) 1 contains a number of optional exemptions from provisions of various standards. Optional exemptions relate to share-based payments; insurance contracts; the cost of accepting fixed assets for accounting; intangible assets and investment property; rent; pension plans; accumulated differences when translating the reporting currency; investments in subsidiaries, jointly controlled entities and associates; financial instruments, liabilities to retire property, plant and equipment, borrowing costs, transfer of assets from customers, severe hyperinflation.
It is necessary to dwell in more detail on some of the optional exemptions that can be applied by Russian enterprises.
Equity instruments granted on or before November 7, 2002 are exempt from retrospective application of IFRS 2 Share-based Payment.
For share-based payments that were granted after 7/11/2002 and will be exercised after the transition date, the entity preparing the first IFRS statements must apply the requirements of IFRS 2. Also, the terms of IFRS 2 apply to liabilities providing for settlement in cash, which will occur after the transition date; to payments, the terms of which are modified at or after the date of transition to IFRS, even if these transactions were not previously reflected in accordance with IFRS.
For property, plant and equipment in accordance with IFRS 1, an optional exemption may be adopted, allowing the opening balance sheet to reflect property, plant and equipment at fair value or at a revalued amount (deemed cost) according to the previous accounting system (RAS). In this case, the fair value of the property, plant and equipment should be determined at the date of transition. The fair value of a property, plant and equipment on first use can be determined using the services of an appraiser or in-house. This estimate can be based on average market prices for the fixed asset or, in their absence, based on the expected profit from the fixed asset or replacement cost (taking into account accumulated depreciation). Any type of calculation must be justified.
The date of determination of the revalued cost of fixed assets, defined in the previous accounting system (RAS), must coincide with the date of transition to IFRS or be determined earlier than the date of transition. The amount of the revalued amount must be broadly comparable to the fair value or to actual cost or amortized cost, which is adjusted for changes in a general or specific price index.
On first-time adoption of IFRS, an entity can apply the exemption related to the valuation of property, plant and equipment, both to an individual item of property, plant and equipment and to groups of property, plant and equipment, and the use of the exemption does not depend on what accounting policy the entity chooses to subsequently measure property, plant and equipment , i.e. an entity is not required to revalue property, plant and equipment in the future.
It should be noted that for fixed assets that existed in the company before 01.01.2003 (prior to this period, the Russian economy was considered hyperinflationary), for which the exemption in terms of fair or revalued value was not applied, the inflation rates approved by the State Statistics Committee of Russia should be applied.
Depreciation of property, plant and equipment, if an entity does not apply fair or revalued cost exemptions, is charged from the date of acquisition of property, plant and equipment. Estimates for the accrued depreciation, based on RAS data, cannot be revised.
IFRS 1 does not provide an exemption for component accounting requirements. For IFRS accounting purposes, it is required to identify a separate component and recognize separately the amount of accrued depreciation in the opening balance sheet. For example, if an item of an enterprise's property, plant and equipment requires a mandatory annual inspection or repair, then the amounts of the proposed inspection or repair would need to be recognized as a separate component of the fixed asset and amortized.
The exemption for the use of fair or revalued amounts as deemed cost in the first financial statements can be applied to intangible assets. This exemption applies to each item of an intangible asset individually only if the recognition and revaluation criteria for the intangible asset in accordance with IAS 38 Intangible Assets are met.
First-time adopters of IFRS may benefit from an optional exemption to accept fair or revalued amounts as deemed cost. This exemption can be applied to certain investment property, and it will only be effective if a model for appraising investment property at cost is selected in the accounting policy. If an entity has chosen the fair value measurement model in its accounting policy, then all investment properties at the date of transition must be measured at fair value and the deemed cost exemption cannot be applied.
International Financial Reporting Standard (IFRS) 1 contains an optional exemption for borrowing costs. This allows, in case of differences in accounting policies between the previous accounting system and IFRS, not to retrospectively apply the requirements of IAS 23 “Costs associated with borrowing” in terms of capitalization of borrowing costs. Since the approaches to determining the amount of capitalized borrowing costs under RAS and IFRS differ, Russian companies are entitled to use this optional exemption. An entity choosing to exercise this exemption is free to apply IAS 23 from the date of transition to IFRSs or an earlier date that the entity chooses. The borrowing cost exemption should apply to all qualifying assets and cannot be applied selectively.
International Financial Reporting Standard (IFRS) 1 provides for the option to take advantage of the optional exemption in respect of provisions for defined benefit retirement benefit plans. If a company had a pension system for its employees before the transition to IFRS, then it can take advantage of this exception. IAS 19 allows entities to select the corridor method, whereby part of the actuarial gains and losses is not recognized. Retrospective application of this approach requires the split of the accumulated gains and losses from the commencement date of the plan into recognized and unrecognized portions. The exemption in IFRS 1 makes it possible to recognize all accumulated actuarial gains and losses at the transition date without dividing accumulated losses into recognized and unrecognized portions. This exemption applies to all pension plans of the company.
International Financial Reporting Standard (IFRS) 1 provides a non-mandatory exemption for business combinations. This exemption prevents restatements of business combinations in accordance with IFRS 3 Business Combinations that occurred in the past before the date of transition to IFRS. The use of this exemption would give the entity the option not to measure the assets and liabilities of the acquired entity at fair value, i.e. will avoid the complexities of retrospective application of the requirement of IFRS 3, the cost of restoring information about the fair value of acquired assets and liabilities (for example, the cost of appraisal services).
First-time adopters can benefit from the exemption only if a business combination that occurred before the transition date meets the definition of a business combination in Appendix B of IFRS 3.
International financial reporting standards require the consolidation of subsidiaries, and the first application of IFRS by the parent company to consolidated companies has its own peculiarities. As part of the application of RAS, prior to the date of transfer, the parent company could not consolidate the subsidiary, not prepare consolidated financial statements.
If the reporting of a subsidiary is involved in the consolidation for the first time, then the following steps must be taken:
- assess the assets and liabilities of a subsidiary (to prepare the opening consolidated balance sheet) in accordance with IFRS as if the subsidiary had already applied IFRS;
- estimate the amount of goodwill at the date of transition as the difference between the parent's share in the assets and liabilities of the subsidiary (assessed in accordance with IFRS) and the actual value of the parent's investment in the subsidiary according to RAS in the parent company's separate statements.
According to the requirements of IFRS 1 for the presentation and disclosure of information in the first statements, a set of reporting forms must contain at least three statements of financial position, two statements of comprehensive income, changes in equity and cash flows.
International Financial Reporting Standard (IFRS) 1 contains disclosure requirements explaining how the transition from the legacy accounting system to IFRS affected the financial position, result and cash flows of an entity. An entity shall prepare reconciliations of equity and profit and RAS loss at the date of transition and at the end of the comparative period.
If the company compiled a statement of cash flows within the framework of RAS, then it must explain all significant adjustments to the indicators of the statement of cash flows.
There are situations when, within the framework of RAS, a company prepared only separate financial statements (i.e. unconsolidated) and this company did not adhere to the requirements of IFRS, according to which it would have to prepare consolidated financial statements. The requirement to reconcile the indicators of equity, profit, and individual indicators of the cash flow statement of a company applying IFRS for the first time is not applicable, since there is no comparable information on reporting forms.
If an entity has used the exemption regarding the application of fair value as deemed cost to property, plant and equipment, intangible assets, investment property, then the amount of these fair values \u200b\u200band the amount of adjustments to carrying amounts according to RAS should be disclosed for individual items in the opening balance sheet.
Having considered the main provisions of the IFRS 1 standard, as well as the peculiarities of its application, it can be noted that the process of preparing the first financial statements under IFRS has its own difficulties. Companies that are going to start preparing financial statements in accordance with IFRS must determine in advance the resources required for the preparation of financial statements, anticipate future changes in the preparation of accounting policies, comply with all IFRS requirements in terms of preparing the opening balance sheet, comparative information, and the first statements. The use of exemptions in the preparation of reports will reduce the time and money spent on preparing reports. Further improvements to IFRS 1 will enable first-time adopters to streamline the process of preparing their first financial statements and provide users of financial statements with high-quality information about the financial position, performance and cash flows.
List of references
- Baryshnikova A. Debut reporting under IFRS // Consultant. 2008. N 13.P. 55 - 56.
- International Financial Reporting Standards. Official website of the IASB: http://www.ifrs.org/IFRSs/Official+Unaccompanied+IFRS+Translations.htm.
- IFRS: KPMG's perspective. A practical guide to international financial reporting standards. 2009/2010: Part 2 / Per. from English. M .: Alpina Publishers, 2010.S. 1922 - 2021.
- Titova S. Application of IFRS for the first time and the basics of transformation // Economy and Life (accounting application). 2007. N 34.S. 23 - 25.
A. N. Konyakhin
Specialist
according to international standards
financial statements
LLC "Advant"
deputy Head of the Audit Department for International Reporting of AFK-Audit LLC.
When preparing financial statements in accordance with IFRS, the transformation of statements is most often used - the process of preparing financial statements in accordance with international standards by adjusting reporting items and regrouping accounting information prepared in accordance with the rules of RAS.There is no single algorithm for transforming financial statements, and in each case, specialists use their own methodology that is optimal for the company.
More and more organizations in RAS apply IFRS standards, which is allowed by the requirements of clause 7 of PBU 1/2008 "Organization's accounting policy". The transition to IFRS for these companies appears to be easier as the number of transformational adjustments will be less.
REFERENCE
The Ministry of Finance of the Russian Federation on the official website on 08/01/2016 published a draft order that amends PBU 1/2008 "Accounting policy of the organization":
“An organization that discloses consolidated financial statements drawn up in accordance with international financial reporting standards or financial statements of an organization that does not create a group, has the right to be guided by federal accounting standards when forming an accounting policy, taking into account the requirements of international financial reporting standards. If the application of the accounting method established by the federal accounting standard leads to inconsistency of the accounting policy of the said organization with the requirements of international financial reporting standards, the organization has the right not to apply this method.
If on a specific issue in the federal accounting standards are not established methods of accounting, then the organization develops an appropriate method based on international financial reporting standards. "
For first-time adopters of international standards, IFRS 1 “First-time adoption of IFRSs” is addressed, which is guided in the first financial statements under IFRS, as well as in interim statements submitted for the part of the period covered by the first financial statements under IFRS. In such reporting, the company accepts all IFRS standards and makes a clear and unconditional statement of compliance with IFRS.
In the event that a company decides that it will not apply any IFRS in its first financial statements, these financial statements will not be considered compliant with IFRS. This can be reporting based on IFRS principles, for example, for management purposes. It should be noted that even if the company has applied all international standards, but has not made a statement of compliance with IFRS, such reporting is also not IFRS reporting.
In practice, questions often arise about the need to apply IFRS 1 if the company previously provided information for the preparation of the parent company's consolidated financial statements, but did not issue individual IFRS statements. It is also possible that the company prepared IFRS statements for internal purposes, but did not present it to the owners or third-party users. In both of the above cases, the requirements of IFRS 1 should be followed when preparing the first set of financial statements.
It also often happens that a company previously prepared financial statements in accordance with IFRS, but then stopped for some time. In this case, one should proceed from an analysis of the costs of preparing financial statements: either issue financial statements as if the company did not allow a break, or reapply IFRS 1. When the standard is reapplied, the statements are prepared ignoring the effect of accounting policies applied in previous periods ...
When applying IFRS for the first time, it is important to understand what the transition date is and what period IFRS 1 recognizes as the first reporting period.
Fig. 1. Date of transition to IFRS
Algorithm for preparing the first IFRS statements for 2016
Throughout the entire transition period, a unified accounting policy should be applied (in the example, the transition period is three years: 2014, 2015, 2016).When preparing the first set of financial statements, certain steps must be taken step by step.
Step 1. All standards that are in effect on the first reporting date should be used. This means that if the transition date is 12/31/2014, and the reporting is prepared on 12/31/2016, then it is necessary to apply the standards that are in effect exactly on 12/31/2016. At the same time, it is possible to use standards issued, but not yet effective, the early application of which is permitted at the first reporting date.
For example, IFRS 15 “Revenue” is effective from 01.01.2018, with early adoption permitted. It is advisable to prepare the first set of reports based on its requirements in order to avoid adjustments in the future, when the new standard becomes effective.
In practice, most companies apply the new standards ahead of time (remember that not all new standards can be applied early).
Step 2.Determine the standards to be applied prior to the reporting date. For example, if the company had leasing in 2015, but not in 2016.
Step 3... Determine the exceptions to be applied.
The general requirement of IFRS is to retrospectively apply the requirements of all applicable IFRS standards at the reporting date. IFRS 1 allows two types of exemptions from retrospective application:
- mandatory exceptions;
- voluntary exceptions.
REFERENCE
Mandatory exceptions are required for all first-time adopters of IFRS. The essence of voluntary exclusions is the right to choose whether or not to apply these exclusions. They relate to the retrospective application of IFRS (that is, from the date of the transaction, as if the company had always applied IFRS).
Example of voluntary exemption: IFRS 1 allows a first-time adopter to measure an asset in the opening IFRS balance sheet using deemed cost for property, plant and equipment, investment property (using the cost model) and intangible assets (subject to active market).
IFRS 1 requires an entity to use estimates for IFRS purposes that are consistent with the estimates adopted when national accounting standards were applied at that date. If there is objective evidence that these estimates were erroneous, for IFRS purposes, estimates that differ from those used in RAS are used. An example is a change in the useful life of property, plant and equipment (in particular, when income is generated from the operation of fully depreciated equipment).
REFERENCE
Errors are omissions and misstatements in the financial statements that arise from the failure to use or misuse reliable information, including the consequences of inaccuracies in calculations, misstatements in the application of accounting policies, underestimation or misinterpretation of facts, and fraud.
Practical example
IFRS 1 allows you to change estimates in the transition period (in the example - from 01/01/2015 to 12/31/2016). Thus, it is possible to change the useful lives of fixed assets and the depreciation method. The accounting model for fixed assets, established in the accounting policy under IFRS, remains unchanged: at initial or at revalued cost [p. 29 IAS 16]. In practice, it is better to change the timing and method of depreciation at the transition date.
Step 4... Build (organize) the preparation process and make it optimal. This will require regulating a set of measures:
- determine the perimeter of consolidation (when compiling consolidated financial statements, the composition and structure of ownership are analyzed, direct, effective shares of ownership and shares of non-controlling shareholders are determined);
- develop an accounting policy in accordance with IFRS (each organization included in the established perimeter of consolidation when preparing consolidated statements must use a unified accounting policy in accordance with IFRS);
- analyze assets and liabilities at the date of transition to IFRS with a view to their recognition for IFRS purposes;
- develop a methodology for transformation (or conducting parallel or combined accounting) and consolidation (when preparing consolidated reporting), data collection packages, transformation models; it is first necessary to analyze the scope of the company, to determine the main differences in reporting items between RAS and IFRS, to form a list of major adjustments.
Practical example
During the transition to IFRS of industrial enterprises, a situation often emerges when assets in RAS are fully depreciated, but continue to be used, and their number is significant. Since the entity benefits from the operation of the asset, it is desirable to change the useful lives of the assets for IFRS purposes.
Adjustment for objects, the cost of which is less than the limit established in the RBSU for accounting for fixed assets [in the general case - up to 40 thousand rubles. inclusive (clause 5 PBU 6/01)], in practice it is carried out if it is material. These objects in RAS are written off when they are put into operation as expenses of the current period, in IFRS they are included in fixed assets. In IFRS there is no cost criterion for classifying assets as fixed assets, but in the accounting policies of a number of Western companies such a criterion exists. When preparing reports, it is necessary to strike a balance between the costs of this preparation and the usefulness of information.
REFERENCE
An adjustment is a change in the amount of lines in the statement of financial position and in the statement of comprehensive income with a change in the financial result of the current period.
Types of adjustments
Reclassification (reclassification)does not affect the profit or loss of the reporting period - accordingly, it simultaneously affects only IFRS balance sheet accounts or only IFRS profit / loss accounts.
Reclassifications arise as a result of differences in the recognition of elements of financial statements under RAS and IFRS, they transfer the same amount from the line item under RAS to the line item under IFRS. Examples of reclassifications are:
- reclassification of advances issued for fixed assets from accounts receivable and other non-current assets according to RAS to construction in progress according to IFRS (to fixed assets);
- reclassification of investment property objects from fixed assets to investment property;
- reclassification of deposits and highly liquid investments with a maturity of less than three months to cash and cash equivalents;
- reclassification of general business expenses from prime cost to administrative expenses.
Examples of adjustments (amendments) are:
- registration of objects received under a lease agreement;
- write-offs of intangible assets that do not meet the recognition criteria of IAS 38;
- accrual of a loss from impairment of property, plant and equipment and construction in progress in accordance with IFRS;
- exclusion of general business expenses from the balance of work in progress and their transfer to the accounts of administrative expenses.
When generating an incoming (opening) statement of financial position in accordance with IFRS as of the date of transition, the following adjustments must be made:
- recognize all assets and liabilities eligible for recognition in accordance with IFRS (for example, finance leases, obligations to dismantle property, plant and equipment);
- exclude assets and liabilities that are not subject to recognition in accordance with IFRS;
- reclassify items of assets, liabilities and equity in the balance sheet in accordance with the requirements of IFRS;
- assess all assets and liabilities in accordance with IFRS - to analyze how assets and liabilities meet the criteria for recognizing assets and liabilities in IFRS, whether their value is correctly formed (for example, it is necessary to devalue materials that have been idle for a long time, idle equipment).
Step 6... Generate reporting in accordance with IFRS.
The composition of the first set of financial statements under IFRS is determined by the requirements of IFRS 1:
- three balance sheets (at the date of transition, the beginning of the reporting period, the end of the reporting period);
- two statements of comprehensive income (for example, 2016, 2015 as comparative information);
- two cash flow statements;
- two statements of changes in equity;
- notes, including comparative information, in accordance with all disclosure requirements.
In its first financial statements, the company explains how the transition from RAS to IFRS affected its financial position, financial results of operations and cash flows. It should reflect the explanation of the provisions of the transition to IFRS, as well as provide a reconciliation of items "Equity" and "Total comprehensive income". The reconciliation should include information that details the amounts of the adjustments under Equity and Profit. In the following periods, this reconciliation is not required.
To facilitate the process of preparing the first set of financial statements and minimize the number of errors, companies often hire consultants who are competent and experienced enough to help in the preparation of the first financial statements under IFRS.
A company moving from national standards to IFRS must follow the requirements of IFRS 1, the main of which is the full retrospective application of all IFRS standards in force at the reporting date of the first IFRS statements.
The process of transition to IFRS is not easy, as a result the IASB and developed the standard IFRS 1 "First-time adoption of IFRS", which came into force on 01.01.2004. It is mandatory for all companies that prepare financial statements in accordance with IFRS for the first time, and contains a clear algorithm for preparing such statements. This standard provides the definition of an entity's first IFRS financial statements, which is the first annual financial statements in which an entity adopts IFRS and makes a clear and unconditional statement of full compliance with IFRS.
IFRS financial statements will be the first financial statements in accordance with IFRS, if the company:
- submitted its most recent previous financial statements;
- prepared financial statements in accordance with IFRS for internal use only, not presenting them to the company's owners or external users;
- prepared a set of statements in accordance with IFRS for consolidation purposes without preparing a complete set of financial statements;
- did not present financial statements for prior periods.
This standard cannot be appliedif the company:
- ceases to present financial statements in accordance with national requirements, having previously submitted them, as well as a second set of financial statements containing a clear and unconditional statement of compliance with IFRS;
- in the previous year presented financial statements in accordance with national requirements and financial statements containing a clear and unconditional statement of compliance with IFRS;
- presented financial statements in the previous year that contained a clear and unqualified statement of compliance with IFRS, even if the auditors based their auditor's report on those qualified financial statements.
There are a number of permissible and four mandatory exceptions to the requirement for retrospective application of IFRSs.
Permitted exceptions apply to provisions of standards for which, in the opinion of the IASB, retrospective application may be too complex or may result in costs that exceed any benefit to the user. Permitted exceptions are voluntary. At management's discretion, permissible exceptions may be applied selectively or all at once, or the company may not use them at all.
Permitted exceptions apply to the following areas of accounting:
- - business combinations;
- - payments based on shares;
- - insurance contracts;
- - the use of fair value or revaluation as the deemed estimated cost of property, plant and equipment and some other assets;
- - rent;
- - employee benefits;
- - accumulated reserve of exchange rate differences;
- - investments in subsidiaries, jointly controlled and associated companies;
- - assets and liabilities of subsidiaries, associated companies, joint activities;
- - combined financial instruments;
- - classification of previously recognized financial instruments;
- - measurement of the fair value of financial assets and liabilities at initial recognition;
- - reserves for liquidation activities and environmental restoration as part of fixed assets;
- - concession agreements in the field of social services;
- - borrowing costs.
Mandatory exceptions apply to accounting areas where retrospective application of IFRS requirements is considered inappropriate. The mandatory exemptions fall into four areas:
- estimated indicators;
- derecognition of financial assets and liabilities;
- hedge accounting;
- some aspects of accounting for non-control ownership.
Comparative informationalso presented in accordance with IFRS.
Almost all adjustments associated with first-time adoption of IFRSs are credited to retained earnings at the beginning of the earliest period for which comparative information is presented in accordance with IFRS.
The first IFRS financial statements should also include a reconciliation of certain amounts presented in accordance with the previous US GAAP and IFRS.
Main stages of transition to IFRS
1. Determining the key date and transition date... That is, to establish the beginning of the earliest period for which comparative information is presented in the financial statements and the reporting date (the end of the last reporting period for which the financial statements are prepared).
2. Formation of accounting policies in accordance with IFRS... The same accounting policies should be used for all periods presented, including for opening balances under IFRS.
3. Definition of items of assets and liabilities under IFRS... In this case, an asset or a liability can be accepted for accounting in accordance with IFRS, even if they are not reflected in accounting in accordance with Russian standards, and vice versa.
4. Valuation of assets and liabilities under IFRS... Valuations for opening balance sheet balances and amounts presented in financial statements under IFRS should be made in accordance with IFRS. As a result, all assets and liabilities recognized must be measured in accordance with IFRS in one of the following ways:
At cost price;
At fair value, i.e. by the amount for which the asset can be exchanged or at which the liability can be extinguished in a transaction between informed, interested parties and parties independent of each other;
At a discounted amount.
5. Adjustments to capital and reserves... After the company has completed all the above stages, a situation may arise when the value of its net assets will differ from the amount of capital and reserves formed in accordance with Russian legislation. According to IFRS 1, this difference must be reflected in retained earnings.
Difficulties and mistakes
One of the difficulties encountered when first applying IFRS is determining the historical cost of property, plant and equipment. Often the company does not have this information and it becomes necessary to involve an independent appraiser. This problem is especially relevant for non-profit organizations, which are legally established to maintain accounting of fixed assets and their depreciation off the balance sheet. Therefore, when translating statements into IFRS format, a clear assessment of all fixed assets of a non-profit organization, including objects worth up to 40 thousand rubles, is required, and a classification with respect to the source of acquisition and their use in business. To do this, it is necessary to conduct a complete analysis of all primary documents for fixed assets accounting.
You should also pay attention to a typical mistake when all adjustments associated with the transition to IFRS are reflected in the profit (loss) of the reporting period, i.e. are actually accounted for twice: in the income statement for the current year and in comparative information. As a result, the assessment of assets and liabilities in the balance sheet complies with IFRS, and the profit recorded in the income statement does not equal the change in the corresponding indicators of the balance sheet at the end and beginning of the period. In this regard, it is necessary to attribute part of the adjustments to retained earnings of previous periods, and to exclude the corresponding transactions reflected in the current year under Russian accounting rules from the profit and loss statement.
The recalculation of all accounting data for the previous two years in accordance with IFRS causes significant difficulties for companies, therefore, in practice, many of them violate this requirement. They use an interim option under IAS 34 Interim Financial Reporting when the first published financial statements are preliminary. It includes only the balance sheet at the date of transition to IFRS (that is, at the reporting date) or indicators for one year, but without comparable data for the previous period.
In addition, IFRS 1 requires the presentation of capital and net income adjustments based on Russian data to bring them in line with IFRS requirements. This means that an equity reconciliation must be presented, including at the date of transition to IFRS.
Most often, companies use the opportunity to measure certain non-current assets at fair value as deemed cost at the date of transition to IFRS. This voluntary exemption allows for the non-determination of the carrying amount of assets based on historical cost, taking into account depreciation and impairment losses, and taking into account hyperinflation.