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IFRS Financial Reporting

Section 10100: Exemptions and Exceptions

International Financial Reporting Standard 1
First-time Adoption of IFRSs

1. IFRS 1
"First-time Adoption of IFRSs", issued in June 2003
Amended in May 2008
Revised in November 2008

2. IFRS 1 Replaced
SIC Interpretation 8
First-time Application of IASs as the Primary Basis of Accounting, Issued in July 1998

3. IFRS 1 applies
--> Only when an entity adopts IFRSs, first time

4. First IFRS Period
If First IFRS Period is --> January 1, 2011 – December 31, 2011
Reporting Date: December 31, 2011
Date of Transition to IFRSs: January 1, 2010

5. First IFRS Financial Statements
Covers Two Annual Periods
Comparative Financial Statements Required by IAS 1

6. First IFRS Financial Statements
(1) Statements of Financial Position
January 1, 2010: Opening statement of financial position
December 31, 2010
December 31, 2011

(2) Statements of Comprehensive Income
(3) Statements of Changes in Equity
(4) Statements of Cash Flows
January 1 – December 31, 2010
January 1 – December 31, 2011

7. If IFRSs are different from Previous GAAP
Adjustments occur
--> from the transactions before the Date of Transition to IFRSs
--> due to different accounting policies under IFRSs and previous GAAP

Adjustments are recognised
--> directly in retained earnings
--> at the Date of Transition to IFRSs

8. Opening IFRS Statement of Financial Position
Recognises --> all assets and liabilities required by IFRSs
Does not recognise --> assets and liabilities not permitted by IFRSs
Reclassifies --> assets, liabilities, and equity items as required by IFRSs
Measures --> assets and liabilities as required by IFRSs

9. Exceptions to Retrospective Application, IFRS 1, Appendix B
Retrospective application of the following are prohibited:
(a) derecognition of financial assets and financial liabilities
(b) hedge accounting
(c) non-controlling interests

10. Exceptions to Retrospective Application (a)
Derecognition of financial assets and financial liabilities
--> General Rule, IFRS 1-pr B2

Derecognition requirements of IAS 39 are
--> Applied prospectively for transactions occurring on or after 1 January 2004

If items in (1) and (2) are derecognised under previous GAAP,
due to a transaction occurred before 1 January 2004
--> Do not recognise them under IFRS
(1) Non-derivative financial assets
(2) Non-derivative financial liabilities

11. Exceptions to Retrospective Application (b)
Hedge accounting
At the date of transition to IFRSs
--> Derivatives are measured at fair value

If deferred losses and gains were recognised,
under previous GAAP on derivatives
--> Eliminate them at the date of transition

Hedging relationship that does not qualify for IAS 39 hedge accounting
--> Do not reflect them in the opening IFRS statement of financial position

For a net position designated as a hedged item under previous GAAP,
--> An individual item within the net position can be designated
--> as a hedged item under IAS 39, before the date of transition to IFRSs

For transactions designated as a hedge,
before the date of transition to IFRSs under previous GAAP,
--> If they do not meet the IAS 39 conditions for hedge accounting
--> discontinue hedge accounting using the rules of IAS 39-pr91 and pr101

12. Exceptions to Retrospective Application (c)
Non-controlling Interests
General Rule: The requirements of IAS 27 are applied prospectively
by a first-time adopter, IAS 27-pr28, pr 30-31, pr34-37

If a first-time adopter elects to apply IFRS 3
to past business combinations, retrospectively
--> the requirements of IAS 27 are applied retrospectively

13. Exemptions: Elective
First-time Adopter of IFRSs
May elect to use one or more of the exemptions:

15 Exemptions: Elective
Appendix C: Exemptions for business combinations
Appendix D: Exemptions from other IFRSs

14. Exemptions for Business Combinations
IFRS 1, Appendix C
IFRS 3: Business Combinations

Past business combinations, occurred before the date of transition to IFRSs
--> A first-time adopter has a choice of (1) and (2)
(1) Apply IFRS 3 to past business combinations retrospectively
(2) Do not apply IFRS 3 to past business combinations

If IFRS 3 is applied to past business combinations
--> All business combinations after that business combinations
--> should be restated by IFRS 3
--> IAS 27 applies to the past and later business combinations

Exemptions from Other IFRSs
IFRS 1, Appendix D

Exemptions (a) – (c)
(a) share-based payment transactions: IFRS 2
(b) insurance contracts: IFRS 4
(c) fair value or revaluation as deemed cost: IAS 16, 38, 40

Exemptions (d) – (f)
(d) leases: IFRIC 4
(e) employee benefits: IAS 19
(f) cumulative translation differences: IAS 21

Exemptions (g) – (j)
(g) investments in subsidiaries, jointly controlled entities and associates: IAS 27,
added in May 2008
(h) assets and liabilities of subsidiaries, associates and joint ventures
(i) compound financial instruments: IAS 32
(j) designation of previously recognised financial instruments: IAS 39

Exemptions (k) – (n)
(k) fair value measurement of financial assets or financial liabilities at initial recognition: IAS 39
(l) decommissioning liabilities included in the cost of property, plant and equipment: IFRIC 1
(m) financial assets or intangible assets accounted for in accordance with IFRIC 12, Service Concession Arrangements
(n) borrowing costs: IAS 23

Exemptions from Other IFRSs
IFRS 1, Appendix D

Exemption (a)
(a) Share-based payment transactions: IFRS 2

For First-time Adopters
Application of IFRS 2 to the following is encouraged, but not required
--> Equity instruments granted on or before November 7, 2002
--> Equity instruments granted after November 7, 2002, vested before the date of transition

Exemption (b)
(b) Insurance Contracts: IFRS 4

First-time Adopter may apply transitional provisions of IFRS 4, IFRS 4, Para. 41
IFRS 4 applies for annual periods beginning on or after 1 January 2005.
Earlier application is encouraged, IFRS 4, Para. 45

If an insurer changes its accounting policies for insurance liabilities,
when it first applies IFRS 4
--> Reclassification of financial assets as ‘at fair value through profit or loss’ is permitted, --> but not required

Exemption (c)
(c) Deemed Cost: IAS 16, 38, 40

First-time adopter may elect one of the following:
--> To use the fair value of PP&E, at the date of transition
--> as Deemed Cost, at the date of transition

--> To use pervious GAAP revaluation of PP&E, at or before the date of transition
--> as Deemed Cost, at the date of revaluation

--> Also applies to IAS 38, Intangible Assets and IAS 40, Investment Property

Exemption (d)
(d) Leases: IFRIC 4

For arrangements existing at the date of transition
--> First-time Adopter may determine
--> whether an arrangement contains a lease
--> Based on the facts and circumstances, at the date of transition

IFRIC Interpretation 4, December 2004
"Determining whether an arrangement contains a lease"

Exemption (e)
(e) Employee Benefits: IAS 19

First-time adopter may elect
--> to recognise all cumulative actuarial gains and losses, at the date of transition to IFRSs,
--> even if “Corridor Approach” is used, for later actuarial gains and losses

Corridor Approach, IAS 19
Some actuarial gains and losses, outside the “Corridor”, are not recognised

Exemption (f)
(f) Cumulative Translation Differences: IAS 21

First-time adopter need not comply, with the requirement of IAS 21
--> for cumulative translation differences
--> existed at the date of transition

IAS 21 Requirement
Recognise some translation differences in other comprehensive income
Accumulate these in a separate component of equity

Exemption (g)
(g) Investments in subsidiaries, jointly controlled entities and associates: IAS 27
--> added in May 2008

IAS 27 Requirement
The above investments are measured, either at cost or in accordance with IAS 39,
in separate financial statements

If First-time adopter measures the investments at cost
--> cost can be either cost determined by IAS 27 or deemed cost

Deemed cost can be one of the following:
(1) fair value at the date of transition or
(2) previous GAAP carrying amount at the date of transition

Exemption (h)
(h) Assets and liabilities of subsidiaries, associates and joint ventures : IAS 27

If a subsidiary adopts IFRSs later than its parent
--> Subsidiary measures assets and liabilities at either (A) or (B)

(A) = Carrying amounts
that would be included in the consolidated financial statements,
based on the parent’s date of transition

(B) = Carrying amounts
required by IFRSs, based on the subsidiary’s date of transition

If the parent adopts IFRSs later than its subsidiary,
--> Parent measures the subsidiary’s assets and liabilities at (C)
in its consolidated financial statements

(C) = Carrying amounts
as in the financial statements of the subsidiary
after adjustments for consolidation, equity accounting

Exemption (i)
(i) Compound Financial Instruments: IAS 32

First-time adopter need not comply with the requirement of IAS 32
for Compound Financial Instruments,
--> if the liability component is, no longer outstanding, at the date of transition

IAS 32 Requirement
Split a compound financial instruments into separate liability and equity components

Exemption (j)
(j) Designation of Previously Recognised Financial Instruments : IAS 39

IAS 39 Permits the following designations, at the time of initial recognition:
Available for sale financial asset
Financial asset or financial liability at fair value through profit or loss,
if certain criteria are met

Exceptions allowed for First-time adopter
Available-for-sale designation is allowed
--> at the date of transition
At fair value through profit or loss designation is allowed
--> at the date of transition, if certain criteria are met

Exemption (k)
(k) Fair value measurement of financial assets or financial liabilities at initial recognition

First-time adopter may apply the requirements
in the last sentence of IAS 39, Para. AG76, AG76A
in either of the following ways:
Prospectively to transactions entered into after October 22, 2002 or
Prospectively to transactions entered into after January 1, 2004

Exemption (l)
(l) Decommissioning liabilities included in the cost of PP&E: IFRIC 1

First-time adopter is not required to comply with the requirements of IFRIC 1
--> for changes occurred before the date of transition

Requirements of IFRIC 1
For cost model:
changes in the liability are added or deducted to and from cost of related assets

For revaluation model:
a decrease in the liability is recognised in other comprehensive income,
which increases revaluation surplus
an increase in the liability is recognised in profit or loss

Exemption (m)
(m) Service Concession Arrangements: IFRIC 12

If it is impracticable to apply IFRIC 12, at the date of transition
--> Recognise financial assets and intangible assets, existed at the date of transition
Carrying amounts at the date of transition:
--> use previous carrying amounts, regardless of previous classification

Exemption (n)
(n) Borrowing Costs: IAS 23

IAS 23 applies to qualifying assets whose commencement date for capitalisation
--> is on or after the effective date, January 1, 2009

Effective date for the First-time adopter:
January 1, 2009 or date of transition to IFRSs, whichever is later