Welcome to the Training on

IFRS
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IFRS 1
First time adoption of
IFRS

BGI
 Objective
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 It was issued to ensure that an entity's first IFRS

F/S & its interim financial reports contain high
quality information that:
1) Is transparent for users and comparable over all

periods presented;
2) Provides a suitable starting point for accounting

under IFRSs;
IFRSs and
3) Can be generated at a cost that does not exceed

the benefits to users.

 Scope
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 An entity shall apply this IFRS in:

a) its first IFRS financial statements;
statements and
b) each interim financial report,
report if any,
that it presents in accordance with IAS
34 Interim Financial Reporting for
part of the period covered by its first
IFRS financial statements.
 Practical issues in First-time Adoption of
IFRS
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 Implementation of IFRS also requires a sound

financial reporting infrastructure.
infrastructure
 Key aspects of this include the following.
1. A robust regulatory framework.
framework For IFRS to be
successful, they must be rigorously enforced.
enforced
2. Trained and qualified staff.
staff Many preparers of
financial statements will have been trained in local
GAAP and not be familiar with the principles
underlying IFRS, let alone the detail.
 Practical issues in First-time Adoption of
IFRS
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3. Availability and transparency of market

information.
information This is particularly important in the
determination of FV which are such a key component of
many IFRSs.
4. High standards of corporate governance and audit. audit
This is all the more important in the transition period,
especially where there is resistance to change.
change
 Overall, there are significant advantages to the
widespread adoption of IFRS, but if the transition is to
go well, there must be a realistic assessment of potential
challenges.
challenges
 Practical issues in First-time Adoption of IFRS
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 The adoption of a new body of accounting standards

will have a significant effect on the accounting
treatments used by an entity and on the related systems
& procedures.
procedures
 The change to IFRS must be carefully managed.
managed
 Here are some of the change management
considerations that should be addressed.
addressed
1. Accurate assessment of the task involved. involved
Underestimation or wishful thinking may hamper the
effectiveness of the conversion and may ultimately
prove inefficient.
inefficient
 Practical issues in First-time Adoption of
IFRS
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2. Proper planning.
planning This should take place at the
overall project level,
level but a detailed task analysis
could be drawn up to control work performed.
3. Human resource management.
management The project must be
properly structured and staffed.
staffed
4. Training. Where there are skills gaps , remedial
training should be provided.
5. Monitoring & Accountability.
Accountability Implementation
progress should be monitored and regular meetings set
up so that participants can personally account for what
they are doing as well as flag up any problems as early
as possible.
 Practical issues in First-time Adoption of
IFRS
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6. Achieving Milestones.
Milestones Successful completion of key
steps and tasks should be appropriately acknowledged,
acknowledged
i.e. what managers call 'celebrating success',
success so as to
sustain motivation and performance.
performance
7. Physical Resourcing. The need for IT equipment and
office space should be properly assessed.
8. Process Review.
Review Care should be taken not to perceive
the change as a one - off quick fix.
fix Any change in future
systems and processes should be assessed and properly
implemented.
9. Follow-up Procedures.
Procedures As with general good
management practice , the follow up procedures should
be planned in to make sure that the changes stick and
that any further changes are identified and addressed.
 IFRS implementation challenges
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1. Adoption of IFRS is costly.

 Costs related to the changing of the internal
systems to make it compatible with the new
reporting standards,
standards training costs , etc.
 For example,
example a study conducted in USA has
indicated that the total cost of transition for the
US companies will be over $8 billion and one
off transition costs for SMEs will be in average
$420,000,
$420,000 which is quite a huge amount of
money to absorb by companies
 IFRS Implementation challenges
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2. More detailed rules

 Local GAAP of many countries have had no such
detailed rules about recognition, measurement &
presentation of financial instruments,
instruments and many will
have had no rules for some accounting issues.
 A challenge for preparers of financial statements is
also a challenge for users.
users
 When financial statements become far more complex
under IFRS than they were under local GAAP, users
may find them hard to understand,
understand and consequently
of little relevance.
 IFRS implementation challenges
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3. Presentation
 IFRS demands that presentation is in accordance
with IAS 1: Presentation of financial statements,
statements
but this standard allows alternative forms of
presentation.
presentation
 In choosing between alternatives, countries tend to
adopt the format that is closest to local GAAP,GAAP
even if this is not necessarily the best format.
 IFRS implementation challenges
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4. Concepts and interpretation

 Preparers of accounts are likely to think in terms of
the conceptual frameworks – if any – that they have
used in developing local GAAP,
GAAP and these may be
different from that of the IASB.
IASB
 Where IFRS themselves give clear guidance, this
may not matter, but where there is uncertainty,
preparers of accounts will fall back on their
traditional conceptual thinking.
thinking
 IFRS implementation challenges
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5. Choice of accounting treatment

 It could be argued that choice is a good thing, as companies
should be able to select the treatment that most fairly reflects
the underlying reality.
 However, in the context of change to IFRS,
IFRS there is a danger
that companies will choose the alternative that closely matches
the approach followed under local GAAP,
GAAP or the one is easier
to implement regardless of whether this is the best choice.
 For example,
example IAS 16 Property, plant and equipment gives a
choice of either the cost model or the revaluation model for a
class of property, plant or equipment.
 IFRS implementation challenges
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6. Inconsistency in recognition or measurement

methods
 As well as the broader choice of which accounting
model to adopt (cost or revaluation, and so on),
IFRS allows further choice on recognition and
measurement within a particular reporting
standard.
 In countries, where local GAAP is not very
developed, preparers of accounts might well
choose the least complex option.
 IFRS implementation challenges
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7. Timing and exemptions taken

 IFRS 1 First time adoption of International Financial
Reporting Standards permits a number of exemptions
during the periods of transition to IFRS.
 This gives scope for manipulation,
manipulation if exemptions are
'cherry-picked'
cherry-picked to produce a favorable picture.
picture
 IFRS implementation challenges
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8. Subjectivity
 In general, it is likely that management judgment will have
a greater impact on financial statements prepared under
IFRS than under local GAAP . The main reasons are :
a) The volume of rules and number of areas addressed by
IFRS is likely to be greater than that under local GAAP.
GAAP
b) Many issues are perhaps addressed for the first time
c) IFRSs are likely to be more complex than local standards.
standards
d) IFRSs allow choice in many cases, cases which leads to
subjectivity.
subjectivity
e) Selection of valuation method.
method
 Recognition, Measurement , Presentation & Disclosure
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 The basic issues include :

1. General principles
2. Opening IFRS statement of financial position
3. Estimates
4. Transition process
5. Main exemptions from applying IFRS in the opening
IFRS statement of financial position
6. Disclosure
 1. General Principles
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1. An entity applies IFRS 1 in its first IFRS financial

statements. ( Sene 30, 2010 E.C)
2. An entity's first IFRS financial statements are the first
annual financial statements in which the entity adopts
IFRS by an explicit and unreserved statement of
compliance with IFRS.
IFRS
3. Any other financial statements are not the first set of
financial statements under IFRS.
IFRS
 2. Opening IFRS - SFP
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1. An entity prepares and presents an opening IFRS

SFP at the date of transition to IFRS. (Sene 30/
Hamle 1,2008 EC)
 This is the starting point for IFRS accounting.
accounting
 Preparation of an opening IFRS SFP typically
involves adjusting the amounts reported at the
same date under previous GAAP.
GAAP
 All adjustments are recognized directly in retained
earnings (or, another category of equity)
equity not in profit
or loss.
loss
 3. Estimates
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 Estimates in the opening IFRS SFP must

be consistent with estimates made at the
same date under previous GAAP even if
further information is now available (in
order to comply with IAS 10).
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 4. Transition process
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 The basic issues to be dealt in transition

process include :
1. Accounting policies
2. Derecognition of assets and liabilities
3. Recognition of new assets and liabilities
4. Reclassification of assets and liabilities
5. Measurement
 4. Transition process
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1. Accounting policies
 The entity should select accounting policies that
comply with IFRSs effective at the end of the first
IFRS reporting period.
period (Sene 30, 2009
E.C/Hamle 1, 2009 E.C)
 These accounting policies are used in the opening
IFRS SFP and throughout all periods presented.
 The entity does not apply different versions of IFRS
effective at earlier dates.
 4. Transition process
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2. De-recognition of assets & liabilities

 Previous GAAP SFP may contain items
that do not qualify for recognition under
IFRS.
IFRS
 For example,
example IFRS does not permit
capitalization of research , staff training
and relocation costs.
costs
 4. Transition process
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3. Recognition of new assets & liabilities

 New assets and liabilities may need to be
recognized.
recognized
 For example,
example deferred tax balances and
certain provisions such as environmental
& decommissioning costs.
costs
 4. Transition process
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4. Reclassification of assets & liabilities

 For example,
example compound financial
instruments need to be split into their
liability and equity components.
 4. Transition process
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5. Measurement
 Value at which asset or liability is
measured may differ under IFRS.
 For example,
example discounting of deferred tax
assets/liabilities not allowed under IFRS
 5. Disclosure
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1. A reconciliation of previous GAAP equity to

IFRSs is required at the date of transition to
IFRSs and for the most recent financial
statements presented under previous GAAP.
GAAP
2. A reconciliation of profit for the presented
under previous GAAP.
 6. Main exemptions from applying
IFRS in the Opening IFRS - SFP
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1. Property, Plant & Equipment, Investment

Properties & Intangible Assets
 Fair value/previous GAAP revaluation may be
used as a substitute for cost at date of transition
to IFRSs.
IFRSs
 6. Main exemptions from applying
IFRS in the Opening IFRS - SFP
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2. Employee benefits
 Unrecognized actuarial gains & losses can be
deemed zero at the date of transition to
IFRSs.
IFRSs
 IAS 19 is applied from then on.
 6. Main exemptions from applying
IFRS in the Opening IFRS - SFP
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3. Cumulative translation differences on foreign

operations
 Translation differences may be deemed zero at
the date of transition to IFRS.
IFRS
 IAS 21 is applied from then on.
 6. Main exemptions from applying IFRS in the
Opening IFRS - SFP
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4. Adoption of IFRS by Subsidiaries, Associates &

Joint Ventures
 If a subsidiary, associate or joint venture adopts IFRS
later than its parent,
parent it measures its assets and
liabilities:
liabilities
 Either:
Either At the amount that would be included in the
parent's financial statements, based on the parent's
date of transition.
 Or:
Or At the amount based on the subsidiary (associate
or joint venture)'s date of transition.
transition
 The Application of IFRS in Ethiopia
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1. Full IFRS/IFRS
 They are designed for entities having Public
Accountability or Public Interest Entities such as
:
a) Securities publicly quoted on the world's Capital Markets.
Markets
b) Financial Institutions.
Institutions
 Public Interest Entities - are decided by parliaments and
regulators not by IASB because there is a public benefit in
good financial information about those enterprises.
 In Ethiopia,
Ethiopia Public Interest Entities include Financial
Institutions, Public Enterprises owned by Federal or
Regional Governments and ECX member companies.
 The Application of IFRS in Ethiopia
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2. IPSAS
 International Public Sector Accounting Standards
are applicable for Charities and Societies.
Societies
3. IFRS for SMEs
 IFRS for Small and Medium Sized Entities.
Entities
 The Application of IFRS in
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Ethiopia
 Phase 1:1 Significant Public Interest Entities:
Entities Financial
Institutions and Public Enterprises owned by Federal or
Regional Governments
 Phase 2:2 Other Public Interest Entities: (ECX member
companies and reporting entities that meet PIE
quantitative thresholds)
thresholds and IPSAS for Charities and
Societies.
Societies PIE quantitative thresholds- 2/4 should be met.
1. Annual turnover exceeding 50,000,000
2. Total employees exceeding 100 employees
3. Total Asset exceeding 100,000,000
4. Total Liability exceeding 100,000,000
 Phase 3:
3 Small and Medium Sized Entities.
Entities
 Phase 1: Significant Public Interest Entities
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 Hamle 1,2009 E.C is recommended as the date for

adoption of IFRS for all Financial Institutions &
large Public Enterprises in Ethiopia.
 Ay entity that starts preparation for transiting would
need to convert its closing balances at Sene 30,
2008 E.C to IFRS based figures which then
become the opening balances as at Hamle 1,2008
E.C for IFRS based financial statements as at
Sene 30, 2009 E.C.
E.C
 Phase 1: Significant Public Interest Entities
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 This provides opening balances for Hamle 1,2009

E.C which is the first IFRS full financial statements
as at Sene 30, 2010 E.C (with Sene 30, 2008/09 as
comparative year)
 However, the commencement for preparation towards
transiting to IFRS by them is Hamle 1, 2007 E.C.
 Phase 2:
2 Other Public Interest Entities
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 All other Public Interest Entities (ECX member

companies and reporting entities that meet PIE
quantitative thresholds for PIEs)
PIEs and Charities and
Societies are expected to mandatorily adopt IFRS and
IPSAS (for Charities and Societies), for statuary purposes,
by Hamle 1, 2010 E.C.
E.C
 This means that they are required to issue IFRS and
IPSAS based on financial statements respectively for the
year ending Sene 30, 2011 E.C.
E.C
 However, the commencement for preparation towards
transiting to IFRS by them is Hamle 1, 2008 E.C.
 Phase 3:
3 Small and Medium Sized Entities
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 IFRS for SMEs shall mandatorily be adopted as at

Hamle 1, 2011 E.C.
 This means that all Small and Medium-sized
Entities in Ethiopia will statutorily be required to
issue IFRS based on financial statements for the year
ending Sene 30, 2012 E.C.
E.C
 However, the commencement for preparation towards
transiting to IFRS by them is Hamle 1, 2009 E.C.
 Self Assessment Questions (SAQ)
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EEN will adopt International Financial Reporting Standards (IFRSs)

for the first time in its financial statements for the year ended31 Dec.
20X9. In its previous financial statements for 31 December 20X7 and
20X8, which were prepared under local GAAP, the entity made a
number of routine accounting estimates, including accrued
expenses .It also recognized a general provision for liabilities;
calculate data fixed percentage of its retained earnings for the year.
This is required under its local GAAP. Subsequently, some of the
accruals were found to be over estimates and some were found to be
under estimates. Required: Discuss how the matters above should
be dealt with in the IFRS financial statements of EEN for the year
ended 31 December 20X9.
 Answer key to SAQ
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1. Provided that the routine accounting estimates have been

made in a manner consistent with IFRSs, no adjustments
are made in the first IFRS financial statements. The only
exception to this is if the company has subsequently
discovered that these estimates were in error. Although
there were some overestimates and some underestimates,
this is probably not the case here. The general provision
is a different matter. This provision would definitely not
have met the criteria for recognition under IAS 37 and
therefore it will not be recognized in the opening IFRS
statement of financial position (1 January 20X8) or at
subsequent year-ends.
BGI
 Thank You for Your Attention !
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Question or
Comment ?
[email protected]
Tele # 0911-072750

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