IFRS 1

First-time Adoption of International Financial Reporting Standards

1Objective and scope

IFRS 1 ensures that an entity's first IFRS financial statements contain high quality information that is transparent for users and comparable over all periods presented, provides a suitable starting point for accounting under IFRS, and can be generated at a cost that does not exceed the benefit to users. It applies to an entity's first annual financial statements in which it makes an explicit and unreserved statement of compliance with IFRS.

2Key definitions

First-time adopter

An entity that presents its first IFRS financial statements.

Date of transition to IFRS

The beginning of the earliest period for which an entity presents full comparative information under IFRS in its first IFRS financial statements.

Opening IFRS statement of financial position

An entity's statement of financial position at the date of transition to IFRS.

Deemed cost

An amount used as a surrogate for cost, or depreciated cost, at a given date - commonly fair value at the date of transition, used as an exemption from full retrospective cost tracing.

3Building the opening IFRS statement of financial position

The general principle is full retrospective application: the entity recognises all assets and liabilities required by IFRS, derecognises assets and liabilities not permitted, reclassifies items previously recognised under a different classification, and measures everything in accordance with IFRS, at the date of transition. Any resulting adjustment is recognised directly in retained earnings (or another appropriate category of equity) at the date of transition, not in profit or loss.

Because full retrospective application can be costly or impracticable, IFRS 1 provides a limited set of mandatory exceptions (areas where retrospective application is prohibited, e.g. hedge accounting, accounting estimates, derecognition of financial instruments) and optional exemptions (areas where an entity may choose a practical shortcut, e.g. using fair value, or a previous GAAP revaluation, as deemed cost for property, plant and equipment or investment property; resetting the cumulative foreign currency translation reserve to zero; not restating past business combinations).

4Presentation and disclosure

Reconciliations of equity reported under previous GAAP to equity under IFRS, both at the date of transition and at the end of the latest period presented under previous GAAP
A reconciliation of total comprehensive income under previous GAAP to total comprehensive income under IFRS for the latest period presented under previous GAAP
An explanation of any material adjustments to the statement of cash flows

5Examinable focus

What KASNEB tests

Kenya adopted IFRS long ago, so first-time adopters are rare in practice; KASNEB tests the concept rather than exemption-by-exemption mechanics - the meaning of the opening IFRS statement of financial position, the general rule of retrospective application, and the required equity reconciliation, usually framed as 'if this entity adopted IFRS today, what would it need to do'.