F1.06 - Development Stage Enterprises & First Time Adoption of IFRS (1.7 & 1.8)

Question 0

Development-Stage Enterprises (US GAAP) – Additional Disclosures

Answer 0

Identify the financial statements as those of development stage enterprises

Balance sheet
- Cumulative net losses described as “deficit accumulated during the development stage”

Income statement
- Also present cumulative income (loss) from the company’s inception

Statement of cash flows
- Also present cumulative cash inflows and cash outflows from company’s inception

Stockholder’s equity
- Number of shares of stock or other securities issued
- Date of issuance
- Dollar amount assigned
- If non cash consideration involved in issuance, include description of nature of consideration, and basis for its valuation

Question 1

Development-Stage Enterprises (US GAAP)

Answer 1

Development-stage

• Principal operations have not yet commenced, or
• Operations have generated an insignificant amount of revenue (or a loss)

Development stage enterprises issue the same financial statements as any other enterprise.
- Identify as statements of development-stage enterprise

Question 2

First-Time Adoption of IFRS

Answer 2

First IFRS statements are the first annual financial statements in which
1) Entity adopts IFRS
and
2) Makes unreserved statement that financial statements are in compliance with IFRS
and
3) Makes then available to owners or other external parties

If adopts IFRS but no statement, not considered first IFRS statement

If adopt IFRS but only use internally, not considered first IFRS statement

Question 3

Opening IFRS Financial Statements

Answer 3

First IFRS statement must include
- 3 balance sheets

• 2 statements of comprehensive income
• 2 income statements (if using 2 statement approach to presenting comprehensive income)
• 2 statements of cash flow
• 2 statements of changes in equity

Question 4

Opening IFRS Financial Statements – Date of Transition

Answer 4

The date of transition to IFRS is the date of the first balance sheet presented.

e.g. First IFRS report is FYE 12/31/03.
Includes 3 balance sheets: FYE 12/31/03, FYE 12/31/02, and FYE 12/31/01
››› Transition date = 12/31/01 = 1/1/02

Question 5

Opening IFRS Financial Statements – Asset and Liability Recognition

Answer 5

Adjustments needed to restate assets and liabilities to IFRS made through retained earnings

Entity can recognize financial assets, financial liabilities to fair value

Can use fair value for long-term assets

• Disclose total fair value
• Disclose total adjustment to carrying amount reported under previous GAAP

Investments in subsidiaries, joint ventures, and associates

• Total still valued at carrying amounts under GAAP
• Total valued at fair value
• Total adjustment to carrying amount reported under previous GAAP

Question 6

Opening IFRS Financial Statements – Explanation of Transition to IFRS

Answer 6

Disclose impact of transition on reported financial position, financial performance, and cash flows.

Include a reconciliation of equity reported under previous GAAP to equity under IFRS for (1) IFRS transition date, and (2) End of last period presented in entity’s most recent annual financial statement in accordance with previous GAAP

Include reconciliation of total comprehensive income under IFRS with that under GAAP for the latest period in the entity’s most recent financial statements

Include disclosures related to the recognition or reversal of impairment losses if impairment losses or reversals were recognized for the first time when preparing the opining IFRS balance sheet.

Question 7

Opening IFRS Financial Statements: Accounting Policies

Answer 7

Use same accounting policies in all period presented

Exemptions from initial application IFRS if cost of application exceeds benefit to financial statement users.

Mandatory exceptions to retrospective application of IFRS at time of initial adoption of IFRS
1. Derecognition of financial assets and liabilities
2. Hedge accounting
3. Non-controlling interest
4. Classification and measurement of financial assets
5. Embedded derivatives.
These items required judgements by management at the time when the outcome of particular transaction was unknown.