IFRS Accounting Trends & Techniques
A close look at the reporting practices of international companies that have already tackled the conversion to IFRS.
November 5, 2009
Adapted from IFRS Accounting Trends & Techniques
This international version captures today’s prevailing financial reporting practices with a myriad of illustrative examples from the actual financial statements of publicly-traded companies around the world. IFRS Accounting Trends & Techniques presents carefully selected excerpts from the audited annual reports of 100 survey entities that report under International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Author’s Note: IFRS 1 is not a static standard. As new jurisdictions permit or require companies to adopt IFRS, the affected entities bring additional issues to the IASB. In July 2009, November 2008, and May 2008, the IASB issued amendments to IFRS 1. Many of the significant provisions are discussed in further detail in “Author’s Notes” appearing later in this section. The amendments previously mentioned are effective for periods beginning on or after January 1, 2010, beginning on or after July 1, 2009, and beginning on or after January 1, 2009, respectively. Earlier application is permitted. The timing of the effective date of these revisions affects the timing of the resulting illustrative excerpts available for potential inclusion in the financial statements; accordingly, the excerpts appearing later in the section may not reflect these revisions.
Recognition and Measurement
At the date of transition to IFRS, IFRS 1 requires an entity to prepare and present its opening balance sheet in accordance with IFRS. Additionally, the entity should apply the same accounting policies in its opening IFRS balance sheet and throughout all periods presented in its first IFRS financial statements. These accounting policies should comply with each IFRS that is effective at the end of its first IFRS reporting period, except as otherwise permitted by IFRS 1. The standards effective at the end of the entity’s first IFRS reporting period may be different from those that were in effect at the entity’s transition date, which is the date of its opening IFRS balance sheet.
Unless a specific exemption or exception is provided or required, retrospective application for all changes in accounting policies is required. Retrospective application involves preparation of the financial statements as if the entity always applied the new accounting policy. Retrospective application may be costly or impracticable for an entity to accomplish or it may permit an entity to use hindsight to achieve an advantageous result. For the benefit of first-time adopter’s of IFRS, IFRS 1 provides both relief (exemptions) and prohibitions (exceptions) from retrospective application, as explained in more detail subsequently.
IFRS 1 includes three exceptions to retrospective application. Essentially, these exceptions prohibit the use of hindsight to achieve a potentially preferable accounting treatment. IFRS 1 prohibits an entity from using retrospective application in the following circumstances:
To comply with IAS 1, IFRS 1 states a first-time adopter’s financial statements should include at least three statements of financial position, two statements of comprehensive income, two separate income statements (if presented), two statements of cash flows, and two statements of changes in equity and related notes, including comparative information.
IFRS 1 does not require an entity to restate information prior to the date of transition when included in historical summaries of selected data. An entity should clearly label information prepared under previous GAAP and describe the main adjustments needed to comply with IFRS.
Transition From U.S. GAAP to IFRS — Year of Transition
Although European Union (EU) regulations, passed in July 2002, generally require that all publicly traded companies domiciled in an EU member state prepare their consolidated financial statements in accordance with IFRS for financial years beginning on or after January 1, 2005, certain exceptions exist. Member states that already apply internationally accepted standards for purposes of stock exchange listings outside the EU are allowed to defer the mandatory application of IFRS until 2007. DaimlerChrysler AG elected to defer its adoption of IFRS; therefore, for its primary financial reporting, it did not adopt IFRS until the annual period beginning January 1, 2007.
This excerpt was taken from DaimlerChrysler AG’s 2006 Annual Report that was prepared in accordance with IFRS and presented solely as supplemental information. DaimlerChrysler AG continued to report using U.S. GAAP, rather than IFRS, in its 2006 Form 20-F filed with the SEC.
In 2007, DaimlerChrysler changed its name to Daimler AG after transferring a majority interest in the Chrysler Group to a subsidiary of the private equity firm, Cerberus Capital Management, L.P.