4. Objectives of IFRS 1
4
❑ It was issued to ensure that an entity's first IFRS
F/S & its interim financial reports contain high
quality information that:
1) provides a suitable starting point for accounting
under IFRSs; and
2) can be generated at a cost that does not
exceed the benefits to users.
3) Is transparent for users and comparable over
all periods presented;
5. Timeline to apply IFRS 1
❑ An entity applies IFRS 1 in its first IFRS financial
statements. ( Sene 30, 2010/11/12 E.C)
▪ 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.
▪ Any other financial statements are not the first
set of financial statements under IFRS.
6
6. AABE Roadmap…(Before Revision)
7
Phase Entities
Date of
Adoption
(Transition)
Comparative
FSs
Reporting
Date
1
SPIEs (Financial
Institutions & Public
Entreprises)
July 8, 2016
(Hamle 1,
2008 E.C.)
July 7, 2017
(Sene 30,
2009)
July 7, 2018
(Sene 30,
2010)
2 OPIEs (ECX Member
Companies meeting
quantitative thresholds
(IFRS) & Charities and
Societies (IPSAS)
July 8, 2017
(Hamle 1,
2009 E.C.)
July 7, 2018
(EFY 2010)
July 7, 2019
(Sene 30,
2011)
3 Small & Medium -
Sized Entities (IFRS for
July 8, 2018
(Hamle 1,
July 7, 2019
(Sene 30,
July 7, 2020
(Sene 30,
7. AABE Roadmap… (Revised)
8
Revised adoption of IFRS/IPSAS in Ethiopia
is scheduled as:
1. እስከ 2015 ዓ.ም/ 2023 G.C / ሙሉ ደረጃዎችን
/Full IFRS/ የሚተገብሩ፡
i. ከፍተኛ የህዝብ ጥቅም ያለባቸዉ (Significant
PIEs)፣
ii. ሌሎች የህዝብ ጥቅም ያለባቸዉ (Other PIEs)
ሲሆኑ፣
9. AABE Roadmap… (Revised)
10
❑ If at least two of the following quantitative
threshold is met, the company falls into Other
PIEs category & required to apply IFRS.
i. Annual Turnover > Br 300,000,000;
ii. Total Asset > Br 200,000,000;
iii. Total Liability > Br 200,000,000;
iv. Employees >200 employees.
10. AABE Roadmap… (Revised)
11
❑ If at least two of the following quantitative
threshold is met, the company falls into SMEs
category and required to apply IFRS for SMEs:
i. Annual Turnover = Br 20,000,000 -Br 300,000,000;
ii. Total Asset = Br 20,000,000 - Br 200,000,000;
iii. Total Liability = Br 20,000,000-Br 200,000,000;
iv. Employees = 20-200 employees.
11. IFRS Conversion Process
12
Different IFRS accounting consultancy firms have
different approaches of converting GAAP based
accounting into IFRS based accounting. The following
phases are the extracts from practices.
1. IFRS need based Training ;
2. Diagnostic Study & Gap Analysis;
3. IFRS based Accounting policy & Procedures ;
4. First Complete IFRS based Financial Statements ;
5. Post-Implementation Support & Validation .
12. Requirements of IFRS 1
13
IFRS 1 is regularly updated to address
first-time adoption issues;
IFRS 1 requires companies to:
1. Identify the first IFRS financial statements;
2. Prepare an opening SFP at the date of
transition to IFRS;
13. Requirements of IFRS 1
14
3. Select accounting policies that comply with IFRS
effective at the end of the first IFRS reporting period
and apply those policies retrospectively to all periods
presented in the first IFRS financial statements; (Sene
30, 2009/10/11 E.C)
▪ These accounting policies are used in the opening
IFRS SFP and throughout all periods presented.
14. Requirements of IFRS 1
15
▪ The entity does not apply different versions of IFRS
effective at earlier dates.
▪ 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 8).
15. Requirements of IFRS 1
16
3. Consider whether to apply any of the
optional exemptions from retrospective
application;
4. Apply mandatory exceptions from
retrospective application;
5. Make extensive disclosures to explain the
transition to IFRS.
16. Opening IFRS SFP
❑ An entity prepares and presents an opening IFRS
SFP at the date of transition to IFRS. (Sene 30/
Hamle 1,2008/09/10 EC)
▪ This is the starting point for IFRS accounting.
▪ Preparation of an opening IFRS SFP typically involves
adjusting the amounts reported at the same date
under previous GAAP.
▪ All adjustments are recognized directly in retained
earnings (or, another category of equity) not in profit
or loss.
17
17. Opening IFRS SFP
18
❑ IFRS 1 requires that the opening IFRS SFP:
1. Include all of the assets and liabilities that IFRS requires;
New assets and liabilities may need to be recognized. For
example : Accounting Software, Annual Leave , Severance
pay, Deferred tax, etc.
2. Exclude any assets and liabilities that IFRS does not permit;
Previous GAAP SFP may contain items that do not qualify
for recognition under IFRS. For example : Long outstanding
Debtors & Creditors, Obsolete Inventories, etc. .
18. Opening IFRS SFP
19
3. Classify all assets , liabilities and equity in accordance
with IFRS. For example : Investment Property, Compound
financial instruments need to be split into their liability
and equity components.
4. Measure all items in accordance with IFRS ; Value at
which asset or liability is measured may differ under
IFRS. For example : Discounting of deferred tax
assets/liabilities not allowed under IFRS
19. Opening IFRS SFP
20
5. Be prepared and presented within an entity’s
first IFRS financial statements.
6. These general principles are followed unless
one of the optional exemptions or mandatory
exceptions does not require or permit
recognition, classification and measurement in
line with the above.
20. Main exemptions - Opening IFRS SFP
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.
2. Employee benefits
▪ Unrecognized actuarial gains & losses can be
deemed zero at the date of transition to IFRSs.
▪ IAS 19 is applied from then on.
21
21. Main exemptions – Opening IFRS SFP
3. Cumulative translation differences on foreign
operations
▪ Translation differences may be deemed zero
at the date of transition to IFRS.
▪ IAS 21 is applied from then on.
22
22. Main exemptions - Opening IFRS SFP
4. Adoption of IFRS by Subsidiaries, Associates & Joint
Ventures
▪ If a subsidiary, associate or joint venture adopts IFRS
later than its parent, it measures its assets and
liabilities:
▪ Either: At the amount that would be included in the
parent's financial statements based on the parent's
date of transition.
▪ Or: At the amount based on the subsidiary (associate
or joint venture)'s date of transition.
23
23. Disclosure
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.
2. A reconciliation of profit for the presented
under previous GAAP.
24
24. First-time Adoption of IFRS - National Issues
25
Implementation of IFRS also requires a sound
financial reporting infrastructure.
▪ Key aspects of this include the following.
1. A robust regulatory framework. For IFRS to be
successful, they must be rigorously enforced.
2. Trained and qualified 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.
25. First-time Adoption of IFRS - National Issues
26
3. Availability and transparency of market
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.
This is all the more important in the transition period,
especially where there is resistance to 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.
26. First-time Adoption of IFRS - Organizational Issues
27
❑ 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.
▪ The change to IFRS must be carefully managed.
▪ Here are some of the change management
considerations that should be addressed.
1. Accurate assessment of the task involved.
Underestimation or wishful thinking may hamper the
effectiveness of the conversion and may ultimately
prove inefficient.
27. First-time Adoption of IFRS - Organizational Issues
28
2. Proper planning. This should take place at the
overall project level but a detailed task analysis
could be drawn up to control work performed.
3. Human resource management. The project must be
properly structured and staffed.
4. Training. Where there are skills gaps , remedial training
should be provided.
5. Monitoring & 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.
28. First-time Adoption of IFRS - Organizational Issues
29
6. Achieving Milestones. Successful completion of key
steps and tasks should be appropriately acknowledged
(i.e. what managers call 'celebrating success', so as to
sustain motivation and performance).
7. Physical Resourcing. The need for IT equipment and
office space should be properly assessed.
8. Process Review. Care should be taken not to perceive
the change as a one - off quick fix. Any change in future
systems and processes should be assessed and properly
implemented.
9. Follow-up 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.
29. IFRS implementation challenges
30
1. Adoption of IFRS is costly.
▪ Costs related to the changing of the internal
systems to make it compatible with the new
reporting standards , training costs , etc.
▪ For 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, which is quite a huge amount of money
to absorb by companies
30. IFRS Implementation challenges
31
2. More detailed rules
❑ Local GAAP of many countries have had no such detailed
rules about recognition, measurement & presentation of
financial 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.
▪ When financial statements become far more complex
under IFRS than they were under local GAAP, users may
find them hard to understand, and consequently of little
relevance.
31. IFRS implementation challenges
32
3. Presentation
▪ IFRS demands that presentation is in accordance
with IAS 1: Presentation of financial statements, but
this standard allows alternative forms of
presentation.
▪ In choosing between alternatives, countries tend to
adopt the format that is closest to local GAAP, even
if this is not necessarily the best format.
32. IFRS implementation challenges
33
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, and these may be
different from that of the 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.
33. IFRS implementation challenges
34
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, there is a danger that
companies will choose the alternative that closely matches the
approach followed under local GAAP, or the one is easier to
implement regardless of whether this is the best choice.
▪ For 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.
34. IFRS implementation challenges
35
6. Inconsistency in recognition or measurement
methods
▪ As well as the broader choice of which accounting
model to adopt (cost or revaluation & so on), IFRS
allows further choice on recognition & 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.
35. IFRS implementation challenges
36
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, if
exemptions are 'cherry-picked' to produce a
favorable picture.
36. IFRS implementation challenges
37
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.
b) Many issues are perhaps addressed for the first time.
c) IFRSs are likely to be more complex than local standards.
d) IFRSs allow choice in many cases, which leads to subjectivity.
e) Selection of valuation method.
37. Key Success Factors (KSF)
❑ Lessons learned from prior IFRS conversion projects of
indicate the following key Success Factors.
1. Work Plan : A well-developed plan , including realistic
timelines and clear accountability;
2. Administration : Involve senior management and
members of the audit committee from the beginning;
3. Resource : Sufficiently focused & appropriately
engaged company resources such as IFRS Project Office
, Project Team and incentives ;
4. Training : Tailored training delivered to the IFRS project
team – designed to meet the various needs of specific
company personnel.
38
38. Key Success Factors (KSF)
5. Requirements : Early assessment of regulatory
requirements such as IFRS proclamations , tax laws,
labor laws , number of comparative years & specific
disclosures, etc.
6. Gap Analysis : A comprehensive and detailed
accounting gap analysis leading to an impact
assessment of process, data and systems, people and
change, and other potentially impacted business areas.
7. Monitoring : Timely involvement of the internal and/or
external auditor;
39
39. Key Success Factors (KSF)
8. Careful management of IC : An IFRS implementation
opens many opportunities to transform key processes and
systems; such integrated efforts create very significant
risks and challenges that need to be carefully managed.
9. Archives Management : An effective procedure for
resolving, cataloging and sharing technical accounting
and key process issues.
10. Communication Plan : Proactive and early development
of sufficiently comprehensive communication plan to
support the organization’s level of engagement,
consistency in execution, and clarity and consistency of
external communication.
40
