IFRS 1 i.e. First Time Adoption of IFRS is the guidance that is applied during the preparation of a company’s first time IFRS based statements. IFRS 1 was created to help companies easily convert to International Standards and provides practical accommodations intended to make first time adoption cost-effective.

What does IFRS 1 require?

The key principle of IFRS 1 is Full Retrospective application of all Standards that are effective as of the closing balance sheet or the reporting date of the first IFRS financial Statements. IFRS 1 requires companies to

  1. Identify the first Financial Statements
  2. Prepare an opening balance sheet at the date of transition
  3. Select accounting policies that comply with these standards and apply those policies retrospectively to all the periods presented in the first financial Statements
  4. Consider whether to apply any of the optional exemptions from retrospective application
  5. Apply the 4 Mandatory exceptions from retrospective application
  6. Make extensive disclosures to explain the Transition

The Opening IFRS Balance Sheet

The Opening Balance Sheet is the standing point for all subsequent accounting under these standards and is prepared at the date of transition, which is beginning of the earliest period for which full comparative information is presented in accordance with the International Financial Reporting Standards

IFRS 1 requires that the opening Balance Sheet should:-

  1. Include all of the Assets and Liabilities that these standards permit
  2. Exclude any Asset or Liability that these standards do not permit
  3. Measure all items in accordance with these standards
  4. Be prepared and presented with an entities first IFRS Financial Statements

These General Principles are to be followed unless any one of the Optional Exemptions or Mandatory Exemptions does not require or permit recognition, classification and measurement in line with the above

IFRS 1 Exemptions

While Recognising the costs involved to extract the information required to retrospectively apply all the applicable IFRS and implications involved in applying the same, the International Accounting Standards Board (IASB) has provided for some optional exemptions for the retrospective application of IFRS 1. Thus, IFRS 1 grants an option to the entity to decide whether it wants to retrospectively apply IFRS in the given situations by undertaking cost-benefit analysis. These optional exemptions are:-

  1. Business Combinations – IFRS 3
  2. Share Based Payments – IFRS 2
  3. Insurance Contracts – IFRS 4
  4. Deemed Cost – IAS 16, IAS 38, IAS 40
  5. Deemed Cost – IAS 17
  6. Employee Benefits – IAS 19
  7. Cumulative Translation Benefits – IAS 21, IAS 27
  8. Investments in associates, subsidiares & joint ventures – IAS 27
  9. Assets & Liabilities of Subsidiares, Associates & Joint ventures – IAS 27
  10. Compound Financial Instruments – IAS 32
  11. Fair Value Measurement of Financial Instruments – IAS 39
  12. Decommissioning Liabilities included in cost of Property, Plant & Equipment – IAS 16
  13. Service Commission Arrangements (IFRIC 12)
  14. Borrowing Cost (IAS 23)
  15. Transfer of Assets from Customers (IFRIC 12)

Consideration of Choices under IFRS

A number of Standards allow companies to choose between alternate policies. Companies should select carefully the Choices of Accounting Policies to be applied to the opening balance sheet and have a full understanding of the implications to current and future periods. The Companies should take this opportunity to evaluate their Accounting Policies with a “Clean Sheet of Paper” mindset

The full version of IFRS 1 as issued by IASB can be downloaded from