2. Adoption of IFRS

Question 1

Adopting IFRS

Answer 1

IFRS 1 deals with the first-time adoption of IFRS:
▪ Objective: to ensure that an entity‘s first IFRS financial statements, and its interim financial reports for part of the period covered by those 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,
▪ can be generated at a cost that does not exceed the benefits to users.

Question 2

Opening IFRS balance sheet

Answer 2

The opening IFRS balance sheet at the date of transition is the starting point for accounting under IFRS.

Question 3

Accounting Policies

Answer 3

▪ The accounting policies used shall comply with each IFRS effective at the reporting date for its first IFRS financial statements
▪ Accounting policies shall be applied as if IFRS had been applied from initial recognition (retrospective application)

Question 4

Recognition/Elimination

Answer 4

▪ The first-time adoption of IFRS requires
▪ to recognise all assets and liabilities according to IFRS (e.g. development costs: IAS 38)
▪ to eliminate those items that are not allowed to be recognised under IFRS
▪ to measure all items according to IFRS (e.g. eliminate depreciation based on tax rules)

▪ Accounting adjustments are recognised directly in equity (mostly “retained earnings”) at the date of transition

Question 5

Presentation and disclosures

Answer 5

▪ An entity‘s first IFRS financial statements shall include at least one year of comparative information under IFRS.
▪ An entity shall explain how the transition from previous GAAP to IFRS affected its reported financial position, financial performance, and cash flows
▪ An entity‘s first IFRS financial statements shall include a reconciliation
▪ of equity reported under previous GAAP to its equity under IFRS
▪ of the profit or loss reported under previous GAAP to its profit or loss under IFRS

Question 6

Examples for Recognition/Elimination

Answer 6

• Maintenance provisions not allowed under IFRS
• Finished goods are recognized at full costs under IFRS if they are related to production
• Direct Development costs must be recognized under IFRS, at that time, this was not allowed under HGB
  —> for R&D:
• must be recognised: development cost after technical feasibility like personell costs, other direct costs, prototype testing, finished goods
• must not be recognised: basic research, research cost, development cost prior to feasibility, training cost of staff, maintenance provision