IFRS Adoption & Implementation Guidance 3 — Questions and Answers
Question 1: Which standard provides the framework for entities adopting IFRS for the very first time?
- IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
- IFRS 1 First-time Adoption of International Financial Reporting Standards (Correct answer)
- IAS 1 Presentation of Financial Statements
- IFRS 15 Revenue from Contracts with Customers
Correct answer: IFRS 1 First-time Adoption of International Financial Reporting Standards
IFRS 1 specifically governs the transition to IFRS by first-time adopters, establishing requirements for the opening balance sheet and required disclosures.
Question 2: A parent company previously did not consolidate a subsidiary under local GAAP. Upon IFRS adoption, the subsidiary must normally be consolidated. Which IFRS 1 exception may allow the parent to avoid full retrospective consolidation?
- The business combinations exemption, applying IFRS 3 only from the transition date (Correct answer)
- The fair value as deemed cost exemption for the subsidiary's net assets
- The short-term employee benefits simplification
- The hedging relationships reset provision
Correct answer: The business combinations exemption, applying IFRS 3 only from the transition date
IFRS 1 includes a voluntary exemption for past business combinations, allowing entities to avoid restating combinations that occurred before the transition date.
Question 3: Under the IFRS for SMEs standard, how often must an entity update its accounting policy selections compared to full IFRS?
- Every six months to remain compliant with updates
- Only when the IASB issues a new version of the IFRS for SMEs standard (Correct answer)
- Whenever individual full IFRS standards are amended
- Annually, regardless of standard changes
Correct answer: Only when the IASB issues a new version of the IFRS for SMEs standard
IFRS for SMEs is updated as a package, so SMEs only need to consider policy changes when a new version of the IFRS for SMEs standard is issued, not with every individual full IFRS amendment.
Question 4: When implementing a new IFRS standard that contains its own transition provisions, a first-time adopter should:
- Apply the new standard's transition provisions as they override IFRS 1 in all cases
- Apply IFRS 1 requirements, which take precedence over the new standard's transition provisions (Correct answer)
- Choose whichever transition approach produces the most favorable financial position
- Consult local regulators for guidance on which standard to follow
Correct answer: Apply IFRS 1 requirements, which take precedence over the new standard's transition provisions
IFRS 1 generally takes precedence for a first-time adopter — the new standard's own transition provisions apply only to existing IFRS preparers, not to those adopting IFRS for the first time.
Question 5: A first-time adopter of IFRS has share-based payment arrangements granted before the transition date that had not yet vested. Which IFRS 1 exemption addresses this?
- The entity must recognize all unvested awards retrospectively using IFRS 2
- A voluntary exemption allows the entity not to apply IFRS 2 to equity instruments granted before the transition date that vested before the reporting date (Correct answer)
- A mandatory exception prohibits any IFRS 2 measurement of pre-transition awards
- Awards granted before transition are treated as fully expensed at the transition date
Correct answer: A voluntary exemption allows the entity not to apply IFRS 2 to equity instruments granted before the transition date that vested before the reporting date
IFRS 1 provides a voluntary exemption from applying IFRS 2 to equity instruments granted on or before the transition date that had already vested by the reporting date.
Question 6: What is the significance of an entity's 'first IFRS reporting period' as defined in IFRS 1?
- The period in which the entity first prepares internal management accounts under IFRS
- The annual period covered by the entity's first IFRS financial statements (Correct answer)
- The quarter in which the transition date falls
- The period ending at the transition date
Correct answer: The annual period covered by the entity's first IFRS financial statements
The first IFRS reporting period is the annual reporting period ending on the date of the first set of financial statements that contains an explicit and unreserved statement of compliance with IFRS.
Question 7: Under IFRS 1, an entity that uses the optional exemption to measure a financial instrument at fair value at the transition date must designate it:
- Within 12 months after the transition date
- On or before the date the first IFRS financial statements are authorized for issue (Correct answer)
- At the beginning of the first comparative period only
- Simultaneously with the external auditor's sign-off
Correct answer: On or before the date the first IFRS financial statements are authorized for issue
Fair value designations under IFRS 9 (or IAS 39) must be made on or before the date the first IFRS financial statements are authorized for issue to qualify under this exemption.
IFRS Adoption & Implementation Guidance 3
Which standard provides the framework for entities adopting IFRS for the very first time?