Accounting (Basics) - Lecture 10
Transition to IFRS for SMEs


Contents
nFirst-time adoption
nPreparing financial statements at the date of transition
nDisclosures
Nov 25, 2014
2

First-time adoption
nAn entity’s first financial statements that conform to this IFRS are the first annual financial
statements in which the entity makes an explicit and unreserved statement in those financial
statements of compliance with the IFRS for SMEs.
nFinancial statements prepared in accordance with these IFRS are an entity’s first such financial
statements if, for example, the entity:
a)did not present financial statements for previous periods;
b)presented its most recent previous financial statements under national requirements that are not
consistent with these IFRS in all respects; or
c)presented its most recent previous financial statements in conformity with full IFRSs.
n
Nov 25, 2014
3

First-time adoption
nSection “Financial Statements Presentation” of these IFRS defines a complete set of financial
statements. It requires an entity to disclose, in a complete set of financial statements,
comparative information in respect of the previous comparable period for all monetary amounts
presented in the financial statements, as well as specified comparative narrative and descriptive
information. An entity may present comparative information in respect of more than one comparable
prior period. Therefore, an entity’s date of transition to the IFRS for SMEs is the beginning of
the earliest period for which the entity presents full comparative information in accordance with
these IFRS in its first financial statements that conform to this IFRS.
n
Nov 25, 2014
4

Preparing financial statements at the date of transition
nAn entity shall, in its opening statement of financial position as of its date of transition to
the IFRS for SMEs (i.e. the beginning of the earliest period presented):
a)recognize all assets and liabilities whose recognition is required by the IFRS for SMEs;
b)not recognize items as assets or liabilities if these IFRS does not permit such recognition;
c)reclassify items that it recognized under its previous financial reporting framework as one type
of asset, liability or component of equity, but are a different type of asset, liability or
component of equity under these IFRS; and
d)apply these IFRS in measuring all recognized assets and liabilities.
nThe accounting policies that an entity uses in its opening statement of financial position under
these IFRS may differ from those that it used for the same date using its previous financial
reporting
n
Nov 25, 2014
5

Preparing financial statements at the date of transition
nframework. The resulting adjustments arise from transactions, other events or conditions before
the date of transition to these IFRS. Therefore, an entity shall recognize those adjustments
directly in retained earnings at the date of transition to this IFRS.
nOn first-time adoption of this IFRS, an entity shall not retrospectively change the accounting
that it followed under its previous financial reporting framework for any of the following
transactions:
a)derecognition of financial assets and financial liabilities – financial assets and liabilities
derecognized under an entity’s previous accounting framework before the date of transition should
not be recognized upon adoption of the IFRS for SMEs. Conversely, for financial assets and
liabilities that would have been derecognized under the IFRS for SMEs in a transaction that took
place before the date of transition, but that were not derecognized under an entity’s previous
accounting framework, an entity may choose (a) to
n
Nov 25, 2014
6

Preparing financial statements at the date of transition
nderecognize them on adoption of the IFRS for SMEs or (b) to continue to recognize them until
disposed of or settled.
b)hedge accounting – an entity shall not change its hedge accounting before the date of transition
to the IFRS for SMEs for the hedging relationships that no longer exist at the date of transition.
For hedging relationships that exist at the date of transition, the entity shall follow the hedge
accounting requirements of Section “Other Financial Instruments Issues”.
c)accounting estimates.
d)discontinued operations.
e)measuring non-controlling interests – the requirements to allocate profit or loss and total
comprehensive income between non-controlling interest and owners of the parent shall be applied
prospectively from the date of transition to the IFRS for SMEs (or from such earlier date as this
IFRS is applied to restate business combinations).
n
Nov 25, 2014
7

Preparing financial statements at the date of transition
nAn entity may use one or more of the following exemptions in preparing its first financial
statements that conform to this IFRS:
a)business combinations – a first-time adopter may elect not to apply Section “Business
Combinations and Goodwill” to business combinations that were effected before the date of
transition to these IFRS.
b)fair value as deemed cost – a first-time adopter may elect to measure an item of property, plant
and equipment, an investment property, or an intangible asset on the date of transition to these
IFRS at its fair value and use that fair value as its deemed cost at that date.
c)revaluation as deemed cost – a first-time adopter may elect to use a previous GAAP revaluation of
an item of property, plant and equipment, an investment property, or an intangible asset at, or
before, the date of transition to this IFRS as its deemed cost at the revaluation date.
n
Nov 25, 2014
8

Preparing financial statements at the date of transition
d)cumulative translation differences – Section “Foreign Currency Translation” requires an entity to
classify some translation differences as a separate component of equity. A first-time adopter may
elect to deem the cumulative translation differences for all foreign operations to be zero at the
date of transition to the IFRS for SMEs (i.e. a ‘fresh start’).
e)separate financial statements – when an entity prepares separate financial statements, Section
“Consolidated and Separate Financial Statements” requires it to account for its investments in
subsidiaries, associates, and jointly controlled entities either:
i.at cost less impairment, or
ii.at fair value with changes in fair value recognized in profit or loss.
n
Nov 25, 2014
9

Preparing financial statements at the date of transition
f)compound financial instruments – Section “Liabilities and Equity” requires an entity to split a
compound financial instrument into its liability and equity components at the date of issue. A
first-time adopter need not separate those two components if the liability component is not
outstanding at the date of transition to these IFRS.
g)deferred income tax – a first-time adopter is not required to recognize, at the date of
transition to the IFRS for SMEs, deferred tax assets or deferred tax liabilities relating to
differences between the tax basis and the carrying amount of any assets or liabilities for which
recognition of those deferred tax assets or liabilities would involve undue cost or effort.
n
n
Nov 25, 2014
10

Preparing financial statements at the date of transition
h)arrangements containing a lease – a first-time adopter may elect to determine whether an
arrangement existing at the date of transition to the IFRS for SMEs contains a lease  on basis of
facts and circumstances existing at that date, rather than when arrangement was entered into.
i)decommissioning liabilities included in the cost of property, plant and equipment – Section
“Property, Plant and Equipment” states that the cost of an item of property, plant and equipment
includes the initial estimate of the costs of dismantling and removing the item and restoring the
site on which it is located, the obligation for which an entity incurs either when the item is
acquired or as a consequence of having used the item during a particular period for purposes
Nov 25, 2014
11

Preparing financial statements at the date of transition
nother than to produce inventories during that period. A first-time adopter may elect to measure
this component of the cost of an item of property, plant and equipment at the date of transition to
the IFRS for SMEs, rather than on the date(s) when the obligation initially arose.
nIf it is impracticable for an entity to provide any disclosures required by this IFRS for any
period before the period in which it prepares its first financial statements that conform to this
IFRS, the omission shall be disclosed.
n
Nov 25, 2014
12

Disclosures
nAn entity shall explain how the transition from its previous financial reporting framework to
these IFRS affected its reported financial position, financial performance and cash flows. For
doing this an entity’s first financial statements prepared using these IFRS shall include:
a)a description of the nature of each change in accounting policy.
b)reconciliations of its equity determined in accordance with its previous financial reporting
framework to its equity determined in accordance with this IFRS for both of the following dates:
i.the date of transition to these IFRS, and
ii.the end of the latest period presented in the entity’s most recent annual financial statements
determined in accordance with its previous financial reporting framework.
n
Nov 25, 2014
13

Disclosures
c)a reconciliation of the profit or loss determined in accordance with its previous financial
reporting framework for the latest period in the entity’s most recent annual financial statements
to its profit or loss determined in accordance with this IFRS for the same period.
nIf an entity becomes aware of errors made under its previous financial reporting framework, the
reconciliations made shall, to the extent practicable, distinguish the correction of those errors
from changes in accounting policies.
nIf an entity did not present financial statements for previous periods, it shall disclose that
fact in its first financial statements that conform to these IFRS.
n
Nov 25, 2014
14