IFRS 1: First-time adoption of IFRS
Moving to IFRS for the first time: the date of transition, the opening IFRS statement of financial position, exceptions, exemptions and reconciliations.
ACCA exams this helps with: SBR Strategic Business Reporting See the ACCA map
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What it is: The rules for a company switching to IFRS from its old accounting rules (its “previous GAAP”).
The key idea: prepare an opening IFRS statement of financial position at the date of transition (the start of the earliest comparative period), as if IFRS had always applied. Adjustments go to retained earnings. There are a few exceptions and optional exemptions to make it practical.
Example. First IFRS accounts for the year to 31 December 2026, with one year of comparatives. The date of transition is 1 January 2025.
Key words
- First IFRS financial statements
- The first annual statements with an explicit and unreserved statement of compliance with IFRS.Example: “These financial statements comply with IFRS Accounting Standards.”
- Date of transition
- The beginning of the earliest period for which full comparative IFRS information is presented.Example: 1 January 2025 for a December 2026 year end.
- Opening IFRS SoFP
- The statement of financial position at the date of transition, prepared under IFRS.Example: The 1 January 2025 balance sheet restated to IFRS.
- Deemed cost
- An amount used as a substitute for cost at the date of transition, such as fair value.Example: Valuing land at fair value of £2m on transition and using that as its cost.
- Previous GAAP
- The basis of accounting used immediately before adopting IFRS.Example: UK GAAP (FRS 102).
Learn
The basic rule
Use the same accounting policies in the opening IFRS SoFP and in every period presented: the IFRS standards in force at the end of the first IFRS reporting period, applied retrospectively. In the opening SoFP:
- recognise all assets and liabilities IFRS requires
- derecognise items IFRS doesn’t allow
- reclassify items that are a different type under IFRS
- measure everything under IFRS
Adjustments are made directly in retained earnings (or another component of equity) at the date of transition.
Mandatory exceptions (retrospective application not allowed)
Including: estimates (keep them consistent with previous GAAP estimates, unless they were errors; don’t use hindsight), derecognition of financial assets and liabilities, hedge accounting, non-controlling interests, classification and measurement of financial assets, embedded derivatives and government loans.
Optional exemptions (examples)
| Exemption | Effect |
|---|---|
| Business combinations | Need not restate acquisitions made before the date of transition. |
| Deemed cost | Use fair value at transition (or an earlier revaluation) as the cost of PPE, investment property or some intangibles. |
| Cumulative translation differences | Reset foreign exchange differences in equity to zero at transition. |
| Leases, borrowing costs and others | Simplified or prospective application. |
Disclosures
Explain how the change to IFRS affected financial position, performance and cash flows, including reconciliations of:
- equity at the date of transition and at the end of the latest period under previous GAAP
- total comprehensive income for the latest period under previous GAAP
Worked example
A company presents its first IFRS financial statements for the year ended 31 December 2026, with comparatives for 2025.
| Item | Date |
|---|---|
| End of first IFRS reporting period | 31 December 2026 |
| Comparative period | Year to 31 December 2025 |
| Date of transition (opening IFRS SoFP) | 1 January 2025 |
| Policies used | IFRS standards effective at 31 December 2026, for all periods |
Under previous GAAP a development project was expensed, but at 1 January 2025 £300,000 of it meets the IAS 38 criteria. In the opening SoFP the company recognises an intangible asset of £300,000 and credits retained earnings £300,000. Its land, carried at a historical cost of £1.2m, has a fair value of £2.0m at transition; it may use £2.0m as deemed cost (the £0.8m increase also goes to retained earnings).
Practice questions
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