Following recent decisions by various jurisdictions to adopt International Financial Reporting Standards (IFRSs), more than 90 countries will either require or permit the use of IFRSs during the next five years.
Thousands of companies throughout the world will be making a transition in financial reporting by breaking away from national practices and changing to accounting standards set by the International Accounting Standards Board (IASB). To help companies making this change, and to enable users of company reports to understand the effect of applying a new (in some cases, completely new) set of accounting standards, the IASB today issued IFRS 1 First-time Adoption of International Financial Reporting Standards, which explains how an entity should make the transition to IFRSs from another basis of accounting.
The IASB through IFRS 1 has sought to address the demand of investors to have transparent information that is comparable over all periods presented, while giving reporting entities a suitable starting point for their accounting under IFRSs. In developing the standard, the IASB consulted interested parties throughout the world and paid particular attention to the need to ensure that the cost of compliance with the new requirements does not exceed the benefits to users of the financial information. The standard is based on the proposals published as an exposure draft ED 1 in July last year, and contains changes that the IASB has made in the light of the 83 comment letters it received.
IFRS 1 requires an entity to comply with every IASB standard in force in the first year when the entity first adopts IFRSs, with some targeted and specific exceptions after consideration of the cost of full compliance. Under IFRS 1, entities must explain how the transition to IASB standards affects their reported financial position, financial performance and cash flows.
Introducing the standard, Sir David Tweedie, IASB Chairman, said:
“IFRS 1 is very timely, because demand is growing for high quality international standards set by the IASB. Thousands of companies throughout the world will be required to adopt IFRSs in the coming years, and the requirements in IFRS 1 are designed to ease the transition for all concerned and to ensure that users of accounts are given high quality information. This is the IASB’s first completely new standard—several more will follow in the next year. We’re on our way!”
Sir David also emphasised the role that national bodies play in the IASB’s deliberations: “The French Conseil National de la Comptabilité (CNC) has participated actively and has made a significant contribution in the development of IFRS 1. The IASB has benefited greatly from its input.”
About IFRS 1
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