First-time Adoption of Australian Equivalents to International Financial Reporting Standards

This compiled Standard applies to annual reporting periods beginning on or after 1 January  2013.  Early application is permitted.  It incorporates relevant amendments made up to and including 7 December 2009.

Prepared on 4 March 2014 by the staff of the Australian Accounting Standards Board.

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COPYRIGHT

© 2014 Commonwealth of Australia

This compiled AASB Standard contains IFRS Foundation copyright material.  Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source.  Requests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to The Director of Finance and Administration, Australian Accounting Standards Board, PO Box 204, Collins Street West, Victoria 8007.

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CONTENTS

COMPILATION DETAILS

Comparison With IFRS 1

Accounting Standard

AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards

Paragraphs

Objective 1

Application Aus1.1 – Aus1.5

Scope 2 – 5

Recognition and Measurement 

Opening Australian-equivalents-to-IFRSs statement of financial position6

Accounting policies 7 – 12

Exemptions from other Australian equivalents to IFRSs 13 – 14

Business combinations 15

Fair value or revaluation as deemed cost 16 – 19

Employee benefits 20 – 20A

Cumulative translation differences 21 – 22

Compound financial instruments 23

Investments in subsidiaries, jointly controlled entities and associates23A – 23B

Assets and liabilities of subsidiaries, associates
and joint ventures 24 – 25

Designation of previously recognised financial instruments 25A

Share-based payment transactions 25B – 25C

Insurance contracts 25D

Changes in existing decommissioning, restoration and similar liabilities included in the cost of property, plant and equipment              25E

Leases 25F

Fair value measurement of financial assets or financial liabilities 25G

Service concession arrangements 25H

Borrowing costs 25I

Exceptions to retrospective application of other Australian equivalents to IFRSs              26

Derecognition of financial assets and financial liabilities 27 – 27A

Hedge accounting 28 – 30

Estimates 31 – 34

Assets classified as held for sale and discontinued operations34A – 34B

Non-controlling interests 34C

Presentation and Disclosure 35

Comparative information 36

Non-Australian-equivalents-to-IFRSs comparative information and historical summaries              37

Explanation of transition to Australian equivalents to IFRSs 38

Reconciliations 39 – 43

Designation of financial assets or financial liabilities 43A

Use of fair value as deemed cost 44

Use of deemed cost for investments in subsidiaries, jointly controlled entities and associates              44A

Interim financial reports 45 – 46

Effective Date 47K – 47L

Appendices:

A  Defined terms Page 40

B  Business combinations  Page 42

IMPLEMENTATION GUIDANCE Page 47

ENDNOTES Page 87

BASIS FOR CONCLUSIONS ON IFRS 1
(available on the AASB website)

Australian Accounting Standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards (as amended) is set out in paragraphs 1 – 47L and Appendices A – B and the Endnotes.  All the paragraphs have equal authority.  Paragraphs in bold type state the main principles.  Terms defined in this Standard are in italics the first time they appear in the Standard.  AASB 1 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations.  In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies.

COMPILATION DETAILS

Accounting Standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards as amended

This compiled Standard applies to annual reporting periods beginning on or after 1 January  2013.  It takes into account amendments up to and including 7 December 2009 and was prepared on 4 March 2014 by the staff of the Australian Accounting Standards Board (AASB).

This compilation is not a separate Accounting Standard made by the AASB.  Instead, it is a representation of AASB 1 (July 2004) as amended by other Accounting Standards, which are listed in the Table below.

Table of Standards

(a) Entities that elect to apply AASB 119 Employee Benefits (December 2004) to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2006 must also apply the amendments made to AASB 1 by AASB 2004-3 to such periods.

(b) Entities that elect to apply the amendments in AASB 2005-4 in respect of AASB 139 Financial Instruments: Recognition and Measurement to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2006 must also apply the amendments made to AASB 1 by AASB 2005-4 to such periods.

(c) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2006, provided that Interpretation 4 Determining whether an Arrangement contains a Lease is also applied to such periods.

(d) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 that end before 31 December 2005.

(e) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2007.

(f) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 that end before 30 June 2006.

(g) Entities may elect to apply the relevant amendments to annual reporting periods beginning on or after 1 January 2005 that end before 28 February 2007.

(h) Entities may elect to apply the relevant amendments to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2008, provided that Interpretation 12 Service Concession Arrangements is also applied to such periods.

(i) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 July 2007.

(j) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009, provided that AASB 123 Borrowing Costs (June 2007) is also applied to such periods.

(k) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009, provided that AASB 101 Presentation of Financial Statements (September 2007) is also applied to such periods.

(l) Entities may elect to apply this Standard to annual reporting periods beginning on or after 30 June 2007 but before 1 July 2009 provided that AASB 3 Business Combinations (March 2008) and the amended AASB 127 Consolidated and Separate Financial Statements (March 2008) are also applied to such periods.

(m) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 July 2009 provided that AASB 127 Consolidated and Separate Financial Statements (as amended by AASB 2008-5 in July 2008) is also applied to such periods.

(n) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009.

(o) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2009 that end before 30 April 2009, provided that AASB 123 Borrowing Costs (June 2007) is also applied to such periods.

(p) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009, provided that AASB 101 Presentation of Financial Statements (September 2007) is also applied to such periods, and to annual reporting periods beginning on or after 1 January 2009 that end before 30 June 2009.

(q) Entities may elect to apply this Erratum to annual reporting periods beginning on or after 1 January 2005, provided that AASB 2009-6 Amendments to Australian Accounting Standards is also applied to such periods.

(r) Entities may elect to apply this Standard  to annual reporting periods ending on or after 31 December 2009 that begin before 1 January 2013, provided that AASB 9 Financial Instruments is also applied to such periods.

Table of Amendments to Standard

Table of Amendments to Implementation Guidance

*  The AASB decided at its meeting on 6 April 2006 to delete all the Australian paragraphs in the Implementation Guidance accompanying, but not part of, AASB 1.  The decision had immediate effect.

General Terminology Amendments

The following amendments are not shown in the above Tables of Amendments:

References to ‘financial report(s)’ were amended to ‘financial statements’ by AASB 2007-8 and AASB 2007-10, except in relation to specific Corporations Act references and interim financial reports.

References to ‘income statement’ and ‘balance sheet’ were amended to ‘statement of comprehensive income’ and ‘statement of financial position’ respectively by AASB 2007-8.

Comparison with IFRS 1

AASB 1 and IFRS 1

AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards as amended incorporates IFRS 1 First-time Adoption of International Financial Reporting Standards as issued and amended by the IASB.  Paragraphs that have been added to this Standard (and do not appear in the text of IFRS 1) are identified with the prefix “Aus”, followed by the number of the preceding IASB paragraph and decimal numbering.

Compliance with IFRS 1

Entities that comply with AASB 1 as amended will simultaneously be in compliance with IFRS 1 as amended, with the exception of not-for-profit public sector entities applying paragraph Aus3.2.

aCCOUNTING STANDARD AASB 1

First-time Adoption of Australian Equivalents to International Financial Reporting Standards

Objective

1 The objective of this Standard is to ensure that an entity’s first Australian-equivalents-to-IFRSs financial statements, and its interim financial reports for part of the period covered by those financial statements, contain high quality information that:

(a) is transparent for users and comparable over all periods presented;

(b) provides a suitable starting point for accounting under Australian equivalents to IFRSs; and

(c) can be generated at a cost that does not exceed the benefits to users.

Application

Aus1.1 This Standard applies to:

(a) each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;

(b) general purpose financial statements of each other reporting entity; and

(c) financial statements that are, or are held out to be, general purpose financial statements.

Aus1.2 This Standard applies to annual reporting periods beginning on or after 1 January 2005.
[Note:  For application dates of paragraphs changed or added by an amending Standard, see Compilation Details.]

Aus1.3 This Standard shall not be applied to annual reporting periods beginning before 1 January 2005.

Aus1.4 The requirements specified in this Standard apply to the financial statements where information resulting from their application is material in accordance with AASB 1031 Materiality.

Aus1.5 Notice of this Standard was published in the Commonwealth of Australia Gazette No S 294, 22 July 2004.

Scope

2 An entity shall apply this Standard in:

(a) its first Australian-equivalents-to-IFRSs financial statements; and

(b) each interim financial report, if any, that it presents under AASB 134 Interim Financial Reporting for part of the period covered by its first Australian-equivalents-to-IFRSs financial statements.

3 An entity’s first Australian-equivalents-to-IFRSs financial statements are the first annual financial statements in which the entity adopts Australian equivalents to IFRSs, by an explicit and unreserved statement in those financial statements of compliance with Australian equivalents to IFRSs.  Financial statements under Australian equivalents to IFRSs are an entity’s first Australian-equivalents-to-IFRSs financial statements if, for example, the entity:

(a) presented its most recent previous financial statements:

(i) under national requirements that were not consistent with International Financial Reporting Standards (IFRSs) in all respects;

(ii) in conformity with IFRSs or Australian equivalents to IFRSs in all respects, except that the financial statements did not contain an explicit and unreserved statement that it complied with IFRSs or Australian equivalents to IFRSs; 

(iii) containing an explicit statement of compliance with some, but not all, IFRSs or Australian equivalents to IFRSs;

(iv) under national requirements inconsistent with IFRSs, using some individual IFRSs or Australian equivalents to IFRSs to account for items for which national requirements did not exist; or

(v) under national requirements, with a reconciliation of some amounts to the amounts determined under IFRSs or Australian equivalents to IFRSs;

(b) prepared financial statements under IFRSs for internal use only, without making them available to the entity’s owners or any other external users;

(c) prepared a reporting package under IFRSs for consolidation purposes without preparing a complete set of financial statements as defined in AASB 101 Presentation of Financial Statements; or

(d) did not present financial statements for previous periods.

Aus3.1 The conditions specified in paragraph 3 for the application of this Standard are satisfied when the first financial statements after this Standard becomes effective contain a statement that the financial statements comply with Australian Accounting Standards, in accordance with paragraph Aus15.2 of AASB 101.

Aus3.2 In rare circumstances, a not-for-profit public sector entity may experience extreme difficulties in complying with the requirements of certain Australian equivalents to IFRSs due to information deficiencies that have caused the entity to state non-compliance with previous GAAP.  In these cases, the conditions specified in paragraph 3 for the application of this Standard are taken to be satisfied provided the entity:

(a) discloses in its first Australian-equivalents-to-IFRSs financial statements:

(i) an explanation of information deficiencies and its strategy for rectifying those deficiencies; and

(ii) the Australian equivalents to IFRSs that have not been complied with; and

(b) makes an explicit and unreserved statement of compliance with other Australian equivalents to IFRSs for which there are no information deficiencies.

4 This Standard applies when an entity first adopts Australian equivalents to IFRSs.  It does not apply when, for example, an entity:

(a) stops presenting financial statements under national requirements, having previously presented them as well as another set of financial statements that contained an explicit and unreserved statement of compliance with IFRSs;

(b) presented financial statements in the previous year under national requirements and those financial statements contained an explicit and unreserved statement of compliance with IFRSs; or

(c) presented financial statements in the previous year that contained an explicit and unreserved statement of compliance with IFRSs, even if the auditors qualified their audit report on those financial statements. 

5 This Standard does not apply to changes in accounting policies made by an entity that already applies Australian equivalents to IFRSs.  Such changes are the subject of:

(a) requirements on changes in accounting policies in AASB 108  Accounting Policies, Changes in Accounting Estimates and Errors; and

(b) specific transitional requirements in other Australian equivalents to IFRSs.

Recognition and Measurement

Opening Australian-equivalents-to-IFRSs statement of financial position

6 An entity shall prepare and present an opening Australian-equivalents-to-IFRSs statement of financial position at the date of transition to Australian equivalents to IFRSs.  This is the starting point for its accounting under Australian equivalents to IFRSs. 

Accounting policies

7 An entity shall use the same accounting policies in its opening Australian-equivalents-to-IFRSs statement of financial position and throughout all periods presented in its first Australian-equivalents-to-IFRSs financial statements.  Those accounting policies shall comply with each of the Australian equivalents to IFRSs effective at the end of its first Australian-equivalents-to-IFRSs reporting period, except as specified in paragraphs 13-34B and 37.

8 An entity shall not apply different versions of Australian equivalents to IFRSs that were effective at earlier dates.  An entity may apply a new Standard that is not yet mandatory if it permits early application.

9 The transitional provisions in other Australian equivalents to IFRSs apply to changes in accounting policies made by an entity that already uses Australian equivalents to IFRSs; they do not apply to a first-time adopter’s transition to Australian equivalents to IFRSs, except as specified in paragraphs 25D, 25H, 25I, 34A and 34B.

10 Except as described in paragraphs 13-34B, an entity shall, in its opening Australian-equivalents-to-IFRSs statement of financial position:

(a) recognise all assets and liabilities whose recognition is required by Australian equivalents to IFRSs;

(b) not recognise items as assets or liabilities if Australian equivalents to IFRSs do not permit such recognition;

(c) reclassify items that it recognised under previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity under Australian equivalents to IFRSs; and

(d) apply Australian equivalents to IFRSs in measuring all recognised assets and liabilities.

11 The accounting policies that an entity uses in its opening Australian-equivalents-to-IFRSs statement of financial position may differ from those that it used for the same date using its previous GAAP.  The resulting adjustments arise from events and transactions before the date of transition to Australian equivalents to IFRSs.  Therefore, an entity shall recognise those adjustments directly in retained earnings (or, if appropriate, another category of equity) at the date of transition to Australian equivalents to IFRSs.

12 This Standard establishes two categories of exceptions to the principle that an entity’s opening Australian-equivalents-to-IFRSs statement of financial position shall comply with each of the Australian equivalents to IFRSs:

(a) paragraphs 13-25I grant exemptions from some requirements of other Australian equivalents to IFRSs; and

(b) paragraphs 26-34B prohibit retrospective application of some aspects of other Australian equivalents to IFRSs.

Exemptions from other Australian equivalents to IFRSs

13 An entity may elect to use one or more of the following exemptions:

(a) business combinations (paragraph 15);

(b) fair value or revaluation as deemed cost (paragraphs 16-19);

(c) employee benefits (paragraphs 20 and 20A);

(d) cumulative translation differences (paragraphs 21 and 22);

(e) compound financial instruments (paragraph 23);

(ea) investments in subsidiaries, jointly controlled entities and associates (paragraphs 23A and 23B);

(f) assets and liabilities of subsidiaries, associates and joint ventures (paragraphs 24 and 25);

(g) designation of previously recognised financial instruments (paragraph 25A);

(h) share-based payment transactions (paragraphs 25B and 25C);

(i) insurance contracts (paragraph 25D);

(j) decommissioning liabilities included in the cost of property, plant and equipment (paragraph 25E);

(k) leases (paragraph 25F);

(l) fair value measurement of financial assets or financial liabilities at initial recognition (paragraph 25G);

(m) a financial asset or an intangible asset accounted for in accordance with Interpretation 12 Service Concession Arrangements, identified in AASB 1048 Interpretation and Application of Standards as corresponding to IFRIC 12 (paragraph 25H); and

(n) borrowing costs (paragraph 25I).

An entity shall not apply these exemptions by analogy to other items.

14 Some exemptions below refer to fair value.  In determining fair values in accordance with this Standard, an entity shall apply the definition of fair value in Appendix A and any more specific guidance in other Australian equivalents to IFRSs on the determination of fair values for the asset or liability in question. Those fair values shall reflect conditions that existed at the date for which they were determined.

Business combinations

15 An entity shall apply the requirements in Appendix B to business combinations that the entity recognised before the date of transition to Australian equivalents to IFRSs.

Fair value or revaluation as deemed cost

16 An entity may elect to measure an item of property, plant and equipment at the date of transition to Australian equivalents to IFRSs at its fair value and use that fair value as its deemed cost at that date.

17 A first-time adopter may elect to use a previous GAAP revaluation of an item of property, plant and equipment at, or before, the date of transition to Australian equivalents to IFRSs as deemed cost at the date of the revaluation, if the revaluation was, at the date of the revaluation, broadly comparable to:

(a) fair value; or

(b) cost or depreciated cost under Australian equivalents to IFRSs, adjusted to reflect, for example, changes in a general or specific price index.

18 The elections in paragraphs 16 and 17 are also available for:

(a) investment property, if an entity elects to use the cost model in AASB 140 Investment Property; and

(b) intangible assets that meet:

(i) the recognition criteria in AASB 138 Intangible Assets (including reliable measurement of original cost); and

(ii) the criteria in AASB 138 for revaluation (including the existence of an active market).

An entity shall not use these elections for other assets or for liabilities.

19 A first-time adopter may have established a deemed cost under previous GAAP for some or all of its assets and liabilities by measuring them at their fair value at one particular date because of an event such as a privatisation or initial public offering.  It may use such event-driven fair value measurements as deemed cost for Australian equivalents to IFRSs at the date of that measurement.

Employee benefits

20 Under AASB 119 Employee Benefits as issued in December 2004, an entity may elect to use a ‘corridor’ approach that leaves some actuarial gains and losses unrecognised.  Retrospective application of this approach requires an entity to split the cumulative actuarial gains and losses from the inception of the plan until the date of transition to Australian equivalents to IFRSs into a recognised portion and an unrecognised portion.  However, a first-time adopter may elect to recognise all cumulative actuarial gains and losses at the date of transition to Australian equivalents to IFRSs, even if it uses the corridor approach for later actuarial gains and losses.  If a first-time adopter uses this election, it shall apply it to all plans.

20A An entity may disclose the amounts required by paragraph 120A(p) of AASB 119 as the amounts are determined for each annual reporting period prospectively from the date of transition to Australian equivalents to IFRSs.

Cumulative translation differences

21 AASB 121 The Effects of Changes in Foreign Exchange Rates requires an entity:

(a) to recognise some translation differences in other comprehensive income and accumulate these in a separate component of equity; and

(b) on disposal of a foreign operation, to reclassify the cumulative translation difference for that foreign operation (including, if applicable, gains and losses on related hedges) from equity to profit or loss as part of the gain or loss on disposal.

22 However, a first-time adopter need not comply with these requirements for cumulative translation differences that existed at the date of transition to Australian equivalents to IFRSs.  If a first-time adopter uses this exemption:

(a) the cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to Australian equivalents to IFRSs; and

(b) the gain or loss on a subsequent disposal of any foreign operation shall exclude translation differences that arose before the date of transition to Australian equivalents to IFRSs and shall include later translation differences.

Compound financial instruments

23           AASB 132 Financial Instruments: Presentation requires an entity to split a compound financial instrument at inception into separate liability and equity components.  If the liability component is no longer outstanding, retrospective application of AASB 132 involves separating two portions of equity.  The first portion is in retained earnings and represents the cumulative interest accreted on the liability component.  The other portion represents the original equity component.  However, under this Standard, a first-time adopter need not separate these two portions if the liability component is no longer outstanding at the date of transition to Australian equivalents to IFRSs.

Investments in subsidiaries, jointly controlled entities and associates

23A When an entity prepares separate financial statements, AASB 127 Consolidated and Separate Financial Statements requires it to account for its investments in subsidiaries, jointly controlled entities and associates either:

(a) at cost; or

(b) in accordance with AASB 139 Financial Instruments: Recognition and Measurement.

23B If a first-time adopter measures such an investment at cost in accordance with paragraph 23A(a), it shall measure that investment at one of the following amounts in its separate opening Australian-equivalents-to-IFRSs statement of financial position:

(a) cost determined in accordance with AASB 127; or

(b) deemed cost. The deemed cost of such an investment shall be its:

(i) fair value (determined in accordance with AASB 139) at the entity’s date of transition to Australian equivalents to IFRSs in its separate financial statements; or

(ii) previous GAAP carrying amount at that date.

A first-time adopter may choose either (i) or (ii) above to measure its investment in each subsidiary, jointly controlled entity or associate that it elects to measure using a deemed cost.

Assets and liabilities of subsidiaries, associates and joint ventures

24 If a subsidiary becomes a first-time adopter later than its parent, the subsidiary shall, in its financial statements, measure its assets and liabilities at either:

(a) the carrying amounts that would be included in the parent’s consolidated financial statements, based on the parent’s date of transition to Australian equivalents to IFRSs, if no adjustments were made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary; or

(b) the carrying amounts required by the rest of this Standard, based on the subsidiary’s date of transition to Australian equivalents to IFRSs.  These carrying amounts could differ from those described in (a):

(i) when the exemptions in this Standard result in measurements that depend on the date of transition to Australian equivalents to IFRSs; or

(ii) when the accounting policies used in the subsidiary’s financial statements differ from those in the consolidated financial statements.  For example, the subsidiary may use as its accounting policy the cost model in AASB 116 Property, Plant and Equipment, whereas the group may use the revaluation model.

A similar election is available to an associate or joint venture that becomes a first-time adopter later than an entity that has significant influence or joint control over it.

25 However, if an entity becomes a first-time adopter later than its subsidiary (or associate or joint venture), the entity shall, in its consolidated financial statements, measure the assets and liabilities of the subsidiary (or associate or joint venture) at the same carrying amounts as in the financial statements of the subsidiary (or associate or joint venture), after adjusting for consolidation and equity accounting adjustments and for the effects of the business combination in which the entity acquired the subsidiary.  Similarly, if a parent becomes a first‑time adopter for its separate financial statements earlier or later than for its consolidated financial statements, it shall measure its assets and liabilities at the same amounts in both financial statements, except for consolidation adjustments.

Designation of previously recognised financial instruments

25A AASB 139 Financial Instruments: Recognition and Measurement permits a financial asset to be designated on initial recognition as available for sale or a financial instrument (provided it meets certain criteria) to be designated as a financial asset or financial liability at fair value through profit or loss.  Despite this requirement exceptions apply in the following circumstances:

(a) any entity is permitted to make an available-for-sale designation at the date of transition to Australian equivalents to IFRSs;

(b) an entity that presents its first Australian-equivalents-to-IFRSs financial statements for an annual period beginning on or after 1 September 2006 – such an entity is permitted to designate, at the date of transition to Australian equivalents to IFRSs, any financial asset or financial liability as at fair value through profit or loss provided the asset or liability meets the criteria in paragraph 9(b)(i), 9(b)(ii) or 11A of AASB 139 at that date;

(c) an entity that presents its first Australian-equivalents-to-IFRSs financial statements for an annual period beginning on or after 1 January 2006 and before 1 September 2006 – such an entity is permitted to designate, at the date of transition to Australian equivalents to IFRSs, any financial asset or financial liability as at fair value through profit or loss provided the asset or liability meets the criteria in paragraph 9(b)(i), 9(b)(ii) or 11A of AASB 139 at that date.  When the date of transition to Australian equivalents to IFRSs is before 1 September 2005, such designations need not be completed until 1 September 2005 and may also include financial assets and financial liabilities recognised between the date of transition to Australian equivalents to IFRSs and 1 September 2005;

(d) an entity that presents its first Australian-equivalents-to-IFRSs financial statements for an annual period beginning before 1 January 2006 and applies paragraphs 11A, 48A, AG4B-AG4K, AG33A and AG33B and the amendments made to paragraphs 9, 12 and 13 of AASB 139 by AASB 2005-4 Amendments to Australian Accounting Standards – such an entity is permitted at the start of its first Australian-equivalents-to-IFRSs reporting period to designate as at fair value through profit or loss any financial asset or financial liability that qualifies for such designation in accordance with these new and amended paragraphs at that date.  When the entity’s first Australian-equivalents-to-IFRSs reporting period begins before 1 September 2005, such designations need not be completed until 1 September 2005 and may also include financial assets and financial liabilities recognised between the beginning of that period and 1 September 2005.  If the entity restates comparative information for AASB 139 it shall restate that information for the financial assets, financial liabilities, or group of financial assets, financial liabilities or both, designated at the start of its first Australian-equivalents-to-IFRSs reporting period.  Such restatement of comparative information shall be made only if the designated items or groups would have met the criteria for such designation in paragraph 9(b)(i), 9(b)(ii) or 11A of AASB 139 at the date of transition to Australian equivalents to IFRSs or, if acquired after the date of transition to Australian equivalents to IFRSs, would have met the criteria in paragraph 9(b)(i), 9(b)(ii) or 11A at the date of initial recognition; and

(e) for an entity that presents its first Australian-equivalents-to-IFRSs financial statements for an annual period beginning before 1 September 2006 – notwithstanding paragraph 91 of AASB 139, any financial assets and financial liabilities of such an entity designated as at fair value through profit or loss in accordance with subparagraph (c) or (d) above that were previously designated as the hedged item in fair value hedge accounting relationships shall be de-designated from those relationships at the same time they are designated as at fair value through profit or loss.

Share-based payment transactions

25B A first-time adopter is encouraged, but not required, to apply AASB 2 Share-based Payment to equity instruments that were granted on or before 7 November 2002.  A first-time adopter is also encouraged, but not required, to apply AASB 2 to equity instruments that were granted after 7 November 2002 that vested before the later of (a) the date of transition to Australian equivalents to IFRSs and (b) 1 January 2005.  However, if a first-time adopter elects to apply AASB 2 to such equity instruments, it may do so only if the entity has disclosed publicly the fair value of those equity instruments, determined at the measurement date, as defined in AASB 2.  For all grants of equity instruments to which AASB 2 has not been applied (e.g. equity instruments granted on or before 7 November 2002), a first-time adopter shall nevertheless disclose the information required by paragraphs 44 and 45 of AASB 2.  If a first-time adopter modifies the terms or conditions of a grant of equity instruments to which AASB 2 has not been applied, the entity is not required to apply paragraphs 26-29 of AASB 2 if the modification occurred before the later of (a) the date of transition to Australian equivalents to IFRSs and (b) 1 January 2005.

25C A first-time adopter is encouraged, but not required, to apply AASB 2 to liabilities arising from share-based payment transactions that were settled before the date of transition to Australian equivalents to IFRSs.  A first-time adopter is also encouraged, but not required, to apply AASB 2 to liabilities that were settled before 1 January 2005.  For liabilities to which AASB 2 is applied, a first-time adopter is not required to restate comparative information to the extent that the information relates to a period or date that is earlier than 7 November 2002.

Insurance contracts

25D A first-time adopter may apply the transitional provisions in AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts.  AASB 4 restricts changes in accounting policies for insurance contracts, including changes made by a first-time adopter.

Changes in existing decommissioning, restoration and similar liabilities included in the cost of property, plant and equipment

25E The Interpretation identified in AASB 1048 Interpretation and Application of Standards as corresponding to IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities requires specified changes in a decommissioning, restoration or similar liability to be added to or deducted from the cost of the asset to which it relates; the adjusted depreciable amount of the asset is then depreciated prospectively over its remaining useful life.  A first-time adopter need not comply with these requirements for changes in such liabilities that occurred before the date of transition to Australian equivalents to IFRSs.  If a first-time adopter uses this exemption, it shall:

(a) measure the liability as at the date of transition to Australian equivalents to IFRSs in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets;

(b) to the extent that the liability is within the scope of the Interpretation identified in AASB 1048 as corresponding to IFRIC 1, estimate the amount that would have been included in the cost of the related asset when the liability first arose, by discounting the liability to that date using its best estimate of the historical risk-adjusted discount rate(s) that would have applied for that liability over the intervening period; and

(c) calculate the accumulated depreciation on that amount, as at the date of transition to Australian equivalents to IFRSs, on the basis of the current estimate of the useful life of the asset, using the depreciation policy adopted by the entity under Australian equivalents to IFRSs.

Leases

25F A first-time adopter may apply the transitional provisions in Interpretation 4 Determining whether an Arrangement contains a Lease identified in AASB 1048 Interpretation and Application of Standards as corresponding to IFRIC 4.  Therefore, a first-time adopter may determine whether an arrangement existing at the date of transition to Australian equivalents to IFRSs contains a lease on the basis of facts and circumstances existing at that date.

Fair value measurement of financial assets or financial liabilities

25G Notwithstanding the requirements of paragraphs 7 and 9, an entity may apply the requirements in the last sentence of AASB 139 paragraph AG76, and paragraph AG76A, in either of the following ways:

(a) prospectively to transactions entered into after 25 October 2002; or

(b) prospectively to transactions entered into after 1 January 2004.

Service concession arrangements

25H A first-time adopter may apply the transitional provisions in Interpretation 12 Service Concession Arrangements, identified in AASB 1048 as corresponding to IFRIC 12.

Borrowing costs

25I A first-time adopter may apply the transitional provisions set out in paragraphs 27 and 28 of AASB 123 Borrowing Costs.  In those paragraphs references to the application date shall be interpreted as 1 January 2009 or the date of transition to Australian equivalents to IFRSs, whichever is later.

Exceptions to retrospective application of other Australian equivalents to IFRSs

26 This Standard prohibits retrospective application of some aspects of other Australian equivalents to IFRSs relating to:

(a) derecognition of financial assets and financial liabilities (paragraphs 27 and 27A);

(b) hedge accounting (paragraphs 28-30);

(c) estimates (paragraphs 31-34);

(d) assets classified as held for sale and discontinued operations (paragraphs 34A and 34B); and

(e) some aspects of accounting for non-controlling interests (paragraph 34C).

Derecognition of financial assets and financial liabilities

27 Except as permitted by paragraph 27A, a first-time adopter shall apply the derecognition requirements in AASB 139 prospectively for transactions occurring on or after 1 January 2004.  In other words, if a first-time adopter derecognised financial assets or non-derivative financial liabilities under its previous GAAP as a result of a transaction that occurred before 1 January 2004, it shall not recognise those assets and liabilities under Australian equivalents to IFRSs (unless they qualify for recognition as a result of a later transaction or event).

27A Notwithstanding paragraph 27, an entity may apply the derecognition requirements in AASB 139 retrospectively from a date of the entity’s choosing, provided that the information needed to apply AASB 139 to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.

Hedge accounting

28 As required by AASB 139, at the date of transition to Australian equivalents to IFRSs, an entity shall:

(a) measure all derivatives at fair value; and

(b) eliminate all deferred losses and gains arising on derivatives that were reported under previous GAAP as if they were assets or liabilities.

29 An entity shall not reflect in its opening Australian-equivalents-to-IFRSs statement of financial position a hedging relationship of a type that does not qualify for hedge accounting under AASB 139 (for example, many hedging relationships where the hedging instrument is a cash instrument or written option; where the hedged item is a net position; or where the hedge covers interest risk in a held-to-maturity investment).  However, if an entity designated a net position as a hedged item under previous GAAP, it may designate an individual item within that net position as a hedged item under Australian equivalents to IFRSs, provided that it does so no later than the date of transition to Australian equivalents to IFRSs.

30 If, before the date of transition to Australian equivalents to IFRSs, an entity had designated a transaction as a hedge but the hedge does not meet the conditions for hedge accounting in AASB 139, the entity shall apply paragraphs 91 and 101 of AASB 139 to discontinue hedge accounting.  Transactions entered into before the date of transition to Australian equivalents to IFRSs shall not be retrospectively designated as hedges.

Estimates

31 An entity’s estimates under Australian equivalents to IFRSs at the date of transition to Australian equivalents to IFRSs shall be consistent with estimates made for the same date under previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

32 An entity may receive information after the date of transition to Australian equivalents to IFRSs about estimates that it had made under previous GAAP.  Under paragraph 31, an entity shall treat the receipt of that information in the same way as non-adjusting events after the end of the reporting period under AASB 110 Events after the Reporting Period.  For example, assume that an entity’s date of transition to Australian equivalents to IFRSs is 1 January 20X4 and new information on 15 July 20X4 requires the revision of an estimate made under previous GAAP at 31 December 20X3.  The entity shall not reflect that new information in its opening Australian-equivalents-to-IFRSs statement of financial position (unless the estimates need adjustment for any differences in accounting policies or there is objective evidence that the estimates were in error).  Instead, the entity shall reflect that new information in profit or loss (or, if appropriate, other comprehensive income) for the year ended 31 December 20X4.

33 An entity may need to make estimates under Australian equivalents to IFRSs at the date of transition to Australian equivalents to IFRSs that were not required at that date under previous GAAP.  To achieve consistency with AASB 110, those estimates under Australian equivalents to IFRSs shall reflect conditions that existed at the date of transition to Australian equivalents to IFRSs.  In particular, estimates at the date of transition to Australian equivalents to IFRSs of market prices, interest rates or foreign exchange rates shall reflect market conditions at that date.

34 Paragraphs 31-33 apply to the opening Australian-equivalents-to-IFRSs statement of financial position.  They also apply to a comparative period presented in an entity’s first Australian-equivalents-to-IFRSs financial statements, in which case the references to the date of transition to Australian equivalents to IFRSs are replaced by references to the end of that comparative period.

Assets classified as held for sale and discontinued operations

34A AASB 5 Non-current Assets Held for Sale and Discontinued Operations requires that it shall be applied prospectively to non-current assets (or disposal groups) that meet the criteria to be classified as held for sale and operations that meet the criteria to be classified as discontinued after the application date of that Standard.  AASB 5 permits an entity to apply the requirements of the Standard to all non-current assets (or disposal groups) that meet the criteria to be classified as held for sale and operations that meet the criteria to be classified as discontinued after any date before its application date, provided the valuations and other information needed to apply the Standard were obtained at the time those criteria were originally met.

34B An entity with a date of transition to Australian equivalents to IFRSs before 1 January 2005 shall apply the transitional provisions of AASB 5.  An entity with a date of transition to Australian equivalents to IFRSs on or after 1 January 2005 shall apply AASB 5 retrospectively.

Non-controlling interests

34C A first-time adopter shall apply the following requirements of AASB 127 Consolidated and Separate Financial Statements (as amended in July 2008) prospectively from the date of transition to Australian equivalents to IFRSs:

(a) the requirement in paragraph 28 that total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance;

(b) the requirements in paragraphs 30 and 31 for accounting for changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control; and

(c) the requirements in paragraphs 34-37 for accounting for a loss of control over a subsidiary, and the related requirements of paragraph 8A of AASB 5.

 However, if a first-time adopter elects to apply AASB 3 (as revised in 2008) retrospectively to past business combinations, it shall also apply AASB 127 (as amended in July 2008) in accordance with paragraph B1 of this Standard.

Presentation and Disclosure

35 Except as described in paragraph 37, this Standard does not provide exemptions from the presentation and disclosure requirements in other Australian equivalents to IFRSs.

Comparative information

36 To comply with AASB 101, an entity’s first Australian-equivalents-to-IFRSs financial statements shall 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.

Non-Australian-equivalents-to-IFRSs comparative information and historical summaries

37 Some entities present historical summaries of selected data for periods before the first period for which they present full comparative information under Australian equivalents to IFRSs.  This Standard does not require such summaries to comply with the recognition and measurement requirements of Australian equivalents to IFRSs.  Furthermore, some entities present comparative information under previous GAAP as well as the comparative information required by AASB 101.  In any financial statements containing historical summaries or comparative information under previous GAAP, an entity shall:

(a) label the previous GAAP information prominently as not being prepared under Australian equivalents to IFRSs; and

(b) disclose the nature of the main adjustments that would make it comply with Australian equivalents to IFRSs.  An entity need not quantify those adjustments.

Explanation of transition to Australian equivalents to IFRSs

38 An entity shall explain how the transition from previous GAAP to Australian equivalents to IFRSs affected its reported financial position, financial performance and cash flows.

Reconciliations

39 To comply with paragraph 38, an entity’s first Australian-equivalents-to-IFRSs financial statements shall include:

(a) reconciliations of its equity reported under previous GAAP to its equity under Australian equivalents to IFRSs for both of the following dates:

(i) the date of transition to Australian equivalents to IFRSs; and

(ii) the end of the latest period presented in the entity’s most recent annual financial statements under previous GAAP;

(b) a reconciliation to its total comprehensive income under Australian equivalents to IFRSs for the latest period in the entity’s most recent annual financial statements.  The starting point for that reconciliation shall be total comprehensive income under previous GAAP for the same period or, if an entity did not report such a total, profit or loss under previous GAAP; and

(c) if the entity recognised or reversed any impairment losses for the first time in preparing its opening Australian-equivalents-to-IFRSs statement of financial position, the disclosures that AASB 136 Impairment of Assets would have required if the entity had recognised those impairment losses or reversals in the period beginning with the date of transition to Australian equivalents to IFRSs.

40 The reconciliations required by paragraph 39(a) and (b) shall give sufficient detail to enable users to understand the material adjustments to the statement of financial position and statement of comprehensive income.  If an entity presented a statement of cash flows under its previous GAAP, it shall also explain the material adjustments to the statement of cash flows.

41 If an entity becomes aware of errors made under previous GAAP, the reconciliations required by paragraph 39(a) and (b) shall distinguish the correction of those errors from changes in accounting policies.

42 AASB 108 does not deal with changes in accounting policies that occur when an entity first adopts Australian equivalents to IFRSs.  Therefore, AASB 108’s requirements for disclosures about changes in accounting policies do not apply in an entity’s first Australian-equivalents-to-IFRSs financial statements.

43 If an entity did not present financial statements for previous periods, its first Australian-equivalents-to-IFRSs financial statements shall disclose that fact.

Designation of financial assets or financial liabilities

43A An entity is permitted to designate a previously recognised financial asset or financial liability as a financial asset or financial liability at fair value through profit or loss or a financial asset as available for sale in accordance with paragraph 25A.  The entity shall disclose the fair value of financial assets or financial liabilities designated into each category at the date of designation and their classification and carrying amount in the previous financial statements.

Use of fair value as deemed cost

44 If an entity uses fair value in its opening Australian-equivalents-to-IFRSs statement of financial position as deemed cost for an item of property, plant and equipment, an investment property or an intangible asset (see paragraphs 16 and 18), the entity’s first Australian-equivalents-to-IFRSs financial statements shall disclose, for each line item in the opening Australian-equivalents-to-IFRSs statement of financial position:

(a) the aggregate of those fair values; and

(b) the aggregate adjustment to the carrying amounts reported under previous GAAP.

Use of deemed cost for investments in subsidiaries, jointly controlled entities and associates

44A Similarly, if an entity uses a deemed cost in its opening Australian-equivalents-to-IFRSs statement of financial position for an investment in a subsidiary, jointly controlled entity or associate in its separate financial statements (see paragraph 23B), the entity’s first Australian-equivalents-to-IFRSs separate financial statements shall disclose:

(a) the aggregate deemed cost of those investments for which deemed cost is their previous GAAP carrying amount;

(b) the aggregate deemed cost of those investments for which deemed cost is fair value; and

(c) the aggregate adjustment to the carrying amounts reported under previous GAAP.

Interim financial reports

45 To comply with paragraph 38, if an entity presents an interim financial report under AASB 134 for part of the period covered by its first Australian-equivalents-to-IFRSs financial statements, the entity shall satisfy the following requirements in addition to the requirements of AASB 134.

(a) Each such interim financial report shall, if the entity presented an interim financial report for the comparable interim period of the immediately preceding financial year, include:

(i) a reconciliation of its equity under previous GAAP at the end of that comparable interim period to its equity under Australian equivalents to IFRSs at that date; and

(ii) a reconciliation to its total comprehensive income under Australian equivalents to IFRSs for that comparable interim period (current and year-to-date).  The starting point for that reconciliation shall be total comprehensive income under previous GAAP for that period or, if an entity did not report such a total, profit or loss under previous GAAP.

 (b) In addition to the reconciliations required by (a), an entity’s first interim financial report under AASB 134 for part of the period covered by its first Australian-equivalents-to-IFRSs financial statements shall include the reconciliations described in paragraph 39(a) and (b) (supplemented by the details required by paragraphs 40 and 41) or a cross-reference to another published document that includes these reconciliations.

46 AASB 134 requires minimum disclosures, which are based on the assumption that users of the interim financial report also have access to the most recent annual financial statements.  However, AASB 134 also requires an entity to disclose ‘any events or transactions that are material to an understanding of the current interim period’.  Therefore, if a first-time adopter did not, in its most recent annual financial statements under previous GAAP, disclose information material to an understanding of the current interim period, its interim financial report shall disclose that information or include a cross-reference to another published document that includes it. 

Effective Date

47 [Deleted by the AASB]

47A [Deleted by the AASB]

47B [Deleted by the AASB]

47C [Deleted by the IASB]

47D [Deleted by the AASB]

47E [Deleted by the AASB]

47F [Deleted by the AASB]

47G [Deleted by the AASB]

47H [Deleted by the AASB]

47I [Deleted by the AASB]

47J [Deleted by the AASB]

47K AASB 2008-7 Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate, issued in July 2008, added paragraphs 13(ea), 23A, 23B and 44A.  An entity shall apply those paragraphs for annual reporting periods beginning on or after 1 January 2009.  Earlier application is permitted.  If an entity applies the paragraphs for an earlier period, it shall disclose that fact.

47L Paragraph 34C was amended by AASB 2008-6 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project issued in July 2008.  An entity shall apply those amendments for annual reporting periods beginning on or after 1 July 2009.  If an entity applies AASB 127 (as amended in 2008) for an earlier period, the amendments shall be applied for that earlier period.

APPENDIX A

Defined terms

This appendix is an integral part of AASB 1.

APPENDIX B

Business combinations

This appendix is an integral part of AASB 1.

B1 A first-time adopter may elect not to apply AASB 3 Business Combinations retrospectively to past business combinations (business combinations that occurred before the date of transition to Australian equivalents to IFRSs).  However, if a first-time adopter restates any business combination to comply with AASB 3, it shall restate all later business combinations and shall also apply AASB 127 (as amended in March 2008) from that same date.  For example, if a first-time adopter elects to restate a business combination that occurred on 30 June 20X6, it shall restate all business combinations that occurred between 30 June 20X6 and the date of transition to Australian equivalents to IFRSs, and it shall also apply AASB 127 (as amended in March 2008) from 30 June 20X6.

B1A An entity need not apply AASB 121 The Effects of Changes in Foreign Exchange Rates retrospectively to fair value adjustments and goodwill arising in business combinations that occurred before the date of transition to Australian equivalents to IFRSs.  If the entity does not apply AASB 121 retrospectively to those fair value adjustments and goodwill, it shall treat them as assets and liabilities of the entity rather than as assets and liabilities of the acquiree.  Therefore, those goodwill and fair value adjustments either are already expressed in the entity’s functional currency or are non-monetary foreign currency items, which are reported using the exchange rate applied under previous GAAP.

B1B An entity may apply AASB 121 retrospectively to fair value adjustments and goodwill arising in either:

(a) all business combinations that occurred before the date of transition to Australian equivalents to IFRSs; or

(b) all business combinations that the entity elects to restate to comply with AASB 3, as permitted by paragraph B1 above.

B2 If a first-time adopter does not apply AASB 3 retrospectively to a past business combination, this has the following consequences for that business combination.

(a) The first-time adopter shall keep the same classification (as an acquisition by the legal acquirer or a uniting of interests) as in its previous GAAP financial statements.

(b) The first-time adopter shall recognise all its assets and liabilities at the date of transition to Australian equivalents to IFRSs that were acquired or assumed in a past business combination, other than:

(i) some financial assets and financial liabilities derecognised under previous GAAP (see paragraph 27); and

(ii) assets, including goodwill, and liabilities that were not recognised in the acquirer’s consolidated statement of financial position under previous GAAP and also would not qualify for recognition under Australian equivalents to IFRSs in the separate statement of financial position of the acquiree (see paragraphs B2(f)-B2(i)).

The first-time adopter shall recognise any resulting change by adjusting retained earnings (or, if appropriate, another category of equity), unless the change results from the recognition of an intangible asset that was previously subsumed within goodwill (see paragraph B2(g)(i)).

(c) The first-time adopter shall exclude from its opening Australian-equivalents-to-IFRSs statement of financial position any item recognised under previous GAAP that does not qualify for recognition as an asset or liability under Australian equivalents to IFRSs.  The first-time adopter shall account for the resulting change as follows:

(i) the first‑time adopter may have classified a past business combination as an acquisition and recognised as an intangible asset an item that does not qualify for recognition as an asset under AASB 138.  It shall reclassify that item (and, if any, the related deferred tax and non-controlling interests) as part of goodwill (unless it deducted goodwill directly from equity under previous GAAP, see paragraph B2(g)(i) and B2(i));

(ii) the first-time adopter shall recognise all other resulting changes in retained earnings.[1]

(d) Australian equivalents to IFRSs require subsequent measurement of some assets and liabilities on a basis that is not based on original cost, such as fair value.  The first-time adopter measures these assets and liabilities on that basis in its opening Australian-equivalents-to-IFRSs statement of financial position, even if they were acquired or assumed in a past business combination.  It shall recognise any resulting change in the carrying amount by adjusting retained earnings (or, if appropriate, another category of equity), rather than goodwill.

(e) Immediately after the business combination, the carrying amount under previous GAAP of assets acquired and liabilities assumed in that business combination shall be their deemed cost under Australian equivalents to IFRSs at that date.  If Australian equivalents to IFRSs require a cost-based measurement of those assets and liabilities at a later date, that deemed cost shall be the basis for cost-based depreciation or amortisation from the date of the business combination.

(f) If an asset acquired, or liability assumed, in a past business combination was not recognised under previous GAAP, it does not have a deemed cost of zero in the opening Australian-equivalent-to-IFRS statement of financial position.  Instead, the acquirer shall recognise and measure it in its consolidated statement of financial position on the basis that Australian equivalents to IFRSs would require in the statement of financial position of the acquiree.  To illustrate: if the acquirer had not, under its previous GAAP, capitalised finance leases acquired in a past business combination, it shall capitalise those leases in its consolidated financial statements, as AASB 117 Leases would require the acquiree to do in its Australian-equivalents-to-IFRSs statement of financial position.  Similarly, if the acquirer had not, under its previous GAAP, recognised a contingent liability that still exists at the date of transition to Australian equivalents to IFRSs, the acquirer shall recognise that contingent liability at that date unless AASB 137 would prohibit its recognition in the financial statements of the acquiree.  Conversely, if an asset or liability was subsumed in goodwill under previous GAAP but would have been recognised separately under AASB 3, that asset or liability remains in goodwill unless Australian equivalents to IFRSs would require its recognition in the financial statements of the acquiree.

(g) The carrying amount of goodwill in the opening Australian-equivalents-to-IFRSs statement of financial position shall be its carrying amount under previous GAAP at the date of transition to Australian equivalents to IFRSs, after the following two adjustments:

(i) If required by paragraph B2(c)(i) above, the first-time adopter shall increase the carrying amount of goodwill when it reclassifies an item that it recognised as an intangible asset under previous GAAP.  Similarly, if paragraph B2(f) requires the first-time adopter to recognise an intangible asset that was subsumed in recognised goodwill under previous GAAP, the first-time adopter shall decrease the carrying amount of goodwill accordingly (and, if applicable, adjust deferred tax and non-controlling interests).

(ii) [Deleted by the IASB]

(iii) Regardless of whether there is any indication that the goodwill may be impaired, the first-time adopter shall apply AASB 136 in testing the goodwill for impairment at the date of transition to Australian equivalents to IFRSs and in recognising any resulting impairment loss in retained earnings (or, if so required by AASB 136, in revaluation surplus).  The impairment test shall be based on conditions at the date of transition to Australian equivalents to IFRSs.

(h) No other adjustments shall be made to the carrying amount of goodwill at the date of transition to Australian equivalents to IFRSs.  For example, the first-time adopter shall not restate the carrying amount of goodwill:

(i) to exclude in-process research and development acquired in that business combination (unless the related intangible asset would qualify for recognition under AASB 138 in the statement of financial position of the acquiree);

(ii) to adjust previous amortisation of goodwill; or

(iii) to reverse adjustments to goodwill that AASB 3 would not permit, but were made under previous GAAP because of adjustments to assets and liabilities between the date of the business combination and the date of transition to Australian equivalents to IFRSs.

(i) If the first-time adopter recognised goodwill under previous GAAP as a deduction from equity:

(i) it shall not recognise that goodwill in its opening Australian-equivalents-to-IFRSs statement of financial position.  Furthermore, it shall not reclassify that goodwill to profit or loss if it disposes of the subsidiary or if the investment in the subsidiary becomes impaired;

(ii) adjustments resulting from the subsequent resolution of a contingency affecting the purchase consideration shall be recognised in retained earnings.

(j) Under its previous GAAP, the first-time adopter may not have consolidated a subsidiary acquired in a past business combination (for example, because the parent did not regard it as a subsidiary under previous GAAP or did not prepare consolidated financial statements).  The first-time adopter shall adjust the carrying amounts of the subsidiary’s assets and liabilities to the amounts that Australian equivalents to IFRSs would require in the subsidiary’s statement of financial position.  The deemed cost of goodwill equals the difference at the date of transition to Australian equivalents to IFRSs between:

(i) the parent’s interest in those adjusted carrying amounts; and

(ii) the cost in the parent’s separate financial statements of its investment in the subsidiary.

(k) The measurement of non-controlling interests and deferred tax follows from the measurement of other assets and liabilities.  Therefore, the above adjustments to recognised assets and liabilities affect non-controlling interests and deferred tax.

B3 The exemption for past business combinations also applies to past acquisitions of investments in associates and of interests in joint ventures.  Furthermore, the date selected for paragraph B1 applies equally for all such acquisitions.

Implementation Guidance

AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards

CONTENTS

Paragraphs

Introduction IG1

AASB 110 Events after the Reporting Period IG2 – IG4

AASB 112 Income Taxes IG5 – IG6

AASB 116 Property, Plant and Equipment IG7 – IG13

AASB 117 Leases IG14 – IG16

AASB 119 Employee Benefits IG18 – IG21

AASB 121 The Effects of Changes in Foreign Exchange Rates IG21A

AASB 3 Business Combinations IG22

AASB 123 Borrowing Costs IG23 – IG25

AASB 127 Consolidated and Separate Financial Statements IG26 – IG31

AASB 129 Financial Reporting in Hyperinflationary Economies IG32 – IG34

AASB 132 Financial Instruments: Presentation IG35 – IG36

AASB 134 Interim Financial Reporting IG37 – IG38

AASB 136 Impairment of Assets and AASB 137 Provisions, Contingent Liabilities and Contingent Assets              IG39 – IG43

AASB 138 Intangible Assets IG44 – IG51

AASB 139 Financial Instruments: Recognition and Measurement IG52

Recognition IG53 – IG54

Embedded derivatives IG55

Measurement IG56 – IG58

Transition adjustments IG58A – IG59

Hedge accounting IG60 – IG60B

AASB 140 Investment Property IG61 – IG62

Explanation of transition to Australian equivalents to IFRSs IG63

AASB 2 Share-based Payment IG64 – IG65

AASB 3 Business Combinations IG22

Australian Interpretations Corresponding to IASB Interpretations

Changes in existing decommissioning, restoration and similar liabilitiesIG201 – IG203

Determining whether an arrangement contains a lease IG204 – IG205

List of examples

After Paragraph

1  Estimates IG3

2  Business combination IG22

3  Business combination – restructuring provision IG22

4  Business combination – intangible assets IG22

5  Business combination – treatment of intangible assets IG22

6  Business combination – subsidiary not consolidated under previous GAAPIG22

7  Business combination – finance lease not capitalised under previous GAAP              IG22

8  Parent adopts Australian equivalents to IFRSs before foreign subsidiaryIG29

9  Foreign subsidiary adopts IFRSs before parent IG29

10  Interim financial reporting IG38

11  Reconciliation of equity and profit or loss IG63

201  Changes in existing decommissioning, restoration and similar liabilitiesIG203

202  Determining whether an arrangement contains a lease IG205

IMPLEMENTATION GUIDANCE

AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards

This guidance accompanies, but is not part of, AASB 1.

Introduction

IG1 This implementation guidance has been adapted from that accompanying IFRS 1 (June 2003) to reflect the Australian context, where “previous GAAP” means the financial reporting regime that applied prior to the introduction of Australian equivalents to IFRSs.  To assist Australian users, the calendar year used in the illustrative examples has been changed to refer to July/June years.  It includes amendments made by the IASB to its Guidance in IFRSs issued since June 2003 up to 31 March 2004.  It:

(a) explains how the requirements of AASB 1 interact with the requirements of some other Australian equivalents to IFRSs.  This explanation addresses those Australian equivalents to IFRSs that are most likely to involve questions that are specific to first-time adopters; and

(b) includes an illustrative example to show how a first-time adopter might disclose how the transition to Australian equivalents to IFRSs affected its reported financial position, financial performance and cash flows, as required by paragraphs 39(a) and (b), 40 and 41 of AASB 1 (paragraph IG63).

AASB 110 Events after the Reporting Period

IG2 Except as described in paragraph IG3, an entity applies AASB 110 in determining whether:

(a) its opening Australian-equivalents-to-IFRSs statement of financial position reflects an event that occurred after the date of transition to Australian equivalents to IFRSs; and

(b) comparative amounts in its first Australian-equivalents-to-IFRSs financial statements reflect an event that occurred after the end of that comparative period.

IG3 Paragraphs 31-34 of AASB 1 require some modifications to the principles in AASB 110 when a first-time adopter determines whether changes in estimates are adjusting or non-adjusting events at the date of transition to Australian equivalents to IFRSs (or, when applicable, the end of the comparative period).  Cases 1 and 2 below illustrate those modifications.  In case 3 below, paragraphs 31-34 of AASB 1 do not require modifications to the principles in AASB 110.

(a) Case 1 – Previous GAAP required estimates of similar items for the date of transition to Australian equivalents to IFRSs, using an accounting policy that is consistent with Australian equivalents to IFRSs.  In this case, the estimates under Australian equivalents to IFRSs need to be consistent with estimates made for that date under previous GAAP, unless there is objective evidence that those estimates were in error (see AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors).  The entity reports later revisions to those estimates as events of the period in which it makes the revisions, rather than as adjusting events resulting from the receipt of further evidence about conditions that existed at the date of transition to Australian equivalents to IFRSs.

(b) Case 2 – Previous GAAP required estimates of similar items for the date of transition to Australian equivalents to IFRSs, but the entity made those estimates using accounting policies that are not consistent with its accounting policies under Australian equivalents to IFRSs.  In this case, the estimates under Australian equivalents to IFRSs need to be consistent with the estimates required under previous GAAP for that date (unless there is objective evidence that those estimates were in error), after adjusting for the difference in accounting policies.  The opening Australian-equivalents-to-IFRSs statement of financial position reflects those adjustments for the difference in accounting policies.  As in case 1, the entity reports later revisions to those estimates as events of the period in which it makes the revisions.

For example, previous GAAP may have required an entity to recognise and measure provisions on a basis consistent with AASB 137 Provisions, Contingent Liabilities and Contingent Assets, except that the previous GAAP measurement was on an undiscounted basis.  In this example, the entity uses the estimates under previous GAAP as inputs in making the discounted measurement required by AASB 137.

(c) Case 3 – Previous GAAP did not require estimates of similar items for the date of transition to Australian equivalents to IFRSs.  Estimates under Australian equivalents to IFRSs for that date reflect conditions existing at that date.  In particular, estimates of market prices, interest rates or foreign exchange rates at the date of transition to Australian equivalents to IFRSs reflect market conditions at that date.  This is consistent with the distinction in AASB 110 between adjusting events after the end of the reporting period and non-adjusting events after the end of the reporting period.

IG4 Paragraphs 31-34 of AASB 1 do not override requirements in other Australian equivalents to IFRSs that base classifications or measurements on circumstances existing at a particular date.  Examples include:

(a) the distinction between finance leases and operating leases (see AASB 117 Leases);

(b) the restrictions in AASB 138 Intangible Assets that prohibit capitalisation of expenditure on an internally generated intangible asset if the asset did not qualify for recognition when the expenditure was incurred; and

(c) the distinction between financial liabilities and equity instruments (see AASB 132 Financial Instruments: Presentation).

AASB 112 Income Taxes

IG5 An entity applies AASB 112 to temporary differences between the carrying amount of the assets and liabilities in its opening Australian-equivalents-to-IFRSs statement of financial position and their tax bases.

IG6 Under AASB 112, the measurement of current and deferred tax reflects tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.  An entity accounts for the effect of changes in tax rates and tax laws when those changes are enacted or substantively enacted.

AASB 116 Property, Plant and Equipment

IG7 If an entity’s depreciation methods and rates under previous GAAP are acceptable under Australian equivalents to IFRSs, it accounts for any change in estimated useful life or depreciation pattern prospectively from when it makes that change in estimate (paragraphs 31 and 32 of AASB 1 and paragraph 61 of AASB 116).  However, in some cases, an entity’s depreciation methods and rates under previous GAAP may differ from those that would be acceptable under Australian equivalents to IFRSs.  If those differences have a material effect on the financial statements, the entity adjusts accumulated depreciation in its opening Australian-equivalents-to-IFRSs statement of financial position retrospectively so that it complies with Australian equivalents to IFRSs.

IG8 An entity may elect to use one of the following amounts as the deemed cost of an item of property, plant and equipment:

(a) fair value at the date of transition to Australian equivalents to IFRSs (paragraph 16 of AASB 1), in which case the entity gives the disclosures required by paragraph 44 of AASB 1;

(b) a revaluation under previous GAAP that meets the criteria in paragraph 17 of AASB 1; or

(c) fair value at the date of an event such as a privatisation or initial public offering (paragraph 19 of AASB 1).

IG9 Subsequent depreciation is based on that deemed cost and starts from the date for which the entity established the fair value measurement or revaluation.

IG10 In the case of a for-profit entity that chooses as its accounting policy the revaluation model in AASB 116 for some or all classes of property, plant and equipment, it presents the cumulative revaluation surplus as a separate component of equity.  The revaluation surplus at the date of transition to Australian equivalents to IFRSs is based on a comparison of the carrying amount of the asset at that date with its cost or deemed cost.  If the deemed cost is the fair value at the date of transition to Australian equivalents to IFRSs, the entity gives the disclosures required by paragraph 44 of AASB 1.

IG11 If revaluations under previous GAAP did not satisfy the criteria in paragraph 17 or 19 of AASB 1, an entity measures the revalued assets in its opening statement of financial position on one of the following bases:

(a) cost (or deemed cost) less any accumulated depreciation and any accumulated impairment losses under the cost model in AASB 116;

(b) deemed cost, being the fair value at the date of transition to Australian equivalents to IFRSs (paragraph 16 of AASB 1); or

(c) revalued amount, if the entity adopts the revaluation model in AASB 116 as its accounting policy under Australian equivalents to IFRSs for all items of property, plant and equipment in the same class.

IG12 AASB 116 requires each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item to be depreciated separately.  However, AASB 116 does not prescribe the unit of measure for recognition of an asset, that is, what constitutes an item of property, plant and equipment.  Thus, judgement is required in applying the recognition criteria to an entity’s specific circumstances (see AASB 116, paragraphs 9 and 43).

IG13 In some cases, the construction or commissioning of an asset results in an obligation for an entity to dismantle or remove the asset and restore the site on which the asset stands.  An entity applies AASB 137 Provisions, Contingent Liabilities and Contingent Assets in recognising and measuring any resulting provision.  The entity applies AASB 116 in determining the resulting amount included in the cost of the asset, before depreciation and impairment losses.  Items such as depreciation and, when applicable, impairment losses cause differences between the carrying amount of the liability and the amount included in the carrying amount of the asset.  An entity accounts for changes in such liabilities in accordance with Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities identified in AASB 1048 Interpretation and Application of Standards as corresponding to IFRIC 1.  However, paragraph 25E of AASB 1 provides an exemption for changes that occurred before the date of transition to Australian equivalents to IFRSs, and prescribes an alternative treatment where the exemption is used.  An example of the first-time adoption of this Interpretation, which illustrates the use of this exemption, is given at paragraphs IG201-IG203.

AASB 117 Leases

IG14 At the date of transition to Australian equivalents to IFRSs, a lessee or lessor classifies leases as operating leases or finance leases on the basis of circumstances existing at the inception of the lease (AASB 117, paragraph 13).  In some cases, the lessee and the lessor may agree to change the provisions of the lease, other than by renewing the lease, in a manner that would have resulted in a different classification in accordance with AASB 117 had the changed terms been in effect at the inception of the lease.  If so, the revised agreement is considered as a new agreement over its term.  However, changes in estimates (for example, changes in estimates of the economic life or of the residual value of the leased property) or changes in circumstances (for example, default by the lessee) do not give rise to a new classification of a lease.

IG15 [Deleted by the AASB]

IG16 SIC-15 Operating Leases—Incentives is an IASB Interpretation that applies to lease terms beginning on or after 1 January 1999.  However, a first-time Australian-equivalents-to-IFRSs adopter applies the Interpretation identified in AASB 1048 as equivalent to SIC-15 to all leases, whether they started before or after that date.

AASB 118 Revenue

IG17 [Deleted by the AASB]

AASB 119 Employee Benefits

IG18 At the date of transition to Australian equivalents to IFRSs, an entity applies AASB 119 as issued in July 2004 or may early adopt AASB 119 as issued in December 2004 in measuring net employee benefit assets or liabilities under defined benefit plans, but it may elect to recognise all cumulative actuarial gains or losses from the inception of the plan until the date of transition to Australian equivalents to IFRSs even if its accounting policy under AASB 119 as issued in December 2004 will involve leaving some later actuarial gains and losses unrecognised (paragraph 20 of AASB 1).  The transitional provisions in AASB 119 as issued in December 2004 do not apply to an entity’s opening Australian-equivalents-to-IFRSs statement of financial position (paragraph 9 of AASB 1).

IG19 An entity’s actuarial assumptions at the date of transition to Australian equivalents to IFRSs are consistent with actuarial assumptions made for the same date under previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those assumptions were in error (paragraph 31 of AASB 1).  The impact of any later revisions to those assumptions is an actuarial gain or loss of the period in which the entity makes the revisions.

IG20 An entity may need to make actuarial assumptions at the date of transition to Australian equivalents to IFRSs that were not necessary under its previous GAAP.  Such actuarial assumptions do not reflect conditions that arose after the date of transition to Australian equivalents to IFRSs.  In particular, discount rates and the fair value of plan assets at the date of transition to Australian equivalents to IFRSs reflect market conditions at that date.  Similarly, the entity’s actuarial assumptions at the date of transition to Australian equivalents to IFRSs about future employee turnover rates do not reflect a significant increase in estimated employee turnover rates as a result of a curtailment of the pension plan that occurred after the date of transition to Australian equivalents to IFRSs (paragraph 33 of AASB 1).

IG21 In many cases, an entity’s first Australian-equivalents-to-IFRSs financial statements will reflect measurements of employee benefit obligations at three dates: the end of the first Australian-equivalents-to-IFRSs reporting period, the date of the comparative statement of financial position and the date of transition to Australian equivalents to IFRSs.  AASB 119 encourages an entity to involve a qualified actuary in the measurement of all material post-employment benefit obligations.  To minimise costs, an entity may request a qualified actuary to carry out a detailed actuarial valuation at one or two of these dates and roll the valuation(s) forward or back to the other date(s).  Any such roll forward or roll back reflects any material transactions and other material events (including changes in market prices and interest rates) between those dates (AASB 119, paragraph 57).

AASB 121 The Effects of Changes in Foreign Exchange Rates

IG21A An entity may, under previous GAAP, have treated goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation as assets and liabilities of the entity rather than as assets and liabilities of the foreign operation.  If so, the entity is permitted to apply prospectively the requirements of paragraph 47 of AASB 121 to all acquisitions occurring after the date of transition to Australian equivalents to IFRSs.

AASB 3 Business Combinations

IG22 The following examples illustrate the effect of Appendix B of AASB 1, assuming that a first-time adopter uses the exemption.

AASB 123 Borrowing Costs

IG23 On first adopting Australian equivalents to IFRSs, an entity begins capitalising borrowing costs (AASB 123).[2]  In accordance with paragraph 25I of AASB 1, an entity:

(a) capitalises borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009 or the date of transition to Australian equivalents to IFRSs (whichever is later);

(b) may elect to designate any date before 1 January 2009 or the date of transition to Australian equivalents to IFRSs (whichever is later) and to capitalise borrowing costs relating to all qualifying assets for which the commencement date for capitalisation is on or after that date.

However, if the entity established a deemed cost for an asset, the entity does not capitalise borrowing costs incurred before the date of the measurement that established the deemed cost.

IG24 AASB 123 requires disclosure of interest capitalised during the period.  Neither AASB 123 nor AASB 1 require disclosure of the cumulative amount capitalised.

IG25 [Deleted by the IASB]

AASB 127 Consolidated and Separate Financial Statements

IG26 A first-time adopter consolidates all subsidiaries (as defined in AASB 127), unless AASB 127 requires otherwise.

IG27 If a first-time adopter did not consolidate a subsidiary under previous GAAP, then:

(a) in its consolidated financial statements, the first-time adopter measures the subsidiary’s assets and liabilities at the same carrying amounts as in the Australian-equivalents-to-IFRSs financial statements of the subsidiary, after adjusting for consolidation procedures and for the effects of the business combination in which it acquired the subsidiary (paragraph 25, AASB 1).  If the subsidiary has not adopted Australian equivalents to IFRSs in its financial statements, the carrying amounts described in the previous sentence are those that Australian equivalents to IFRSs would require in those financial statements (paragraph B2(j), Appendix B, AASB 1);

(b) if the parent acquired the subsidiary in a business combination before the date of transition to Australian equivalents to IFRSs, the parent recognises goodwill, as explained in IG Example 6; or

(c) if the parent did not acquire the subsidiary in a business combination because it created the subsidiary, the parent does not recognise goodwill.

IG28 When a first-time adopter adjusts the carrying amounts of assets and liabilities of its subsidiaries in preparing its opening Australian-equivalents-to-IFRSs statement of financial position, this may affect non-controlling interests and deferred tax.

IG29 IG Examples 8 and 9 illustrate paragraphs 24 and 25 of AASB 1, which address cases where a parent and its subsidiary become first-time adopters at different dates.

IG30 Paragraphs 24 and 25 of AASB 1 do not override the following requirements:

(a) to apply Appendix B of AASB 1 to assets acquired, and liabilities assumed, in a business combination that occurred before the acquirer’s date of transition to Australian equivalents to IFRSs.  However, the acquirer applies paragraph 25 to new assets acquired, and liabilities assumed, by the acquiree after that business combination and still held at the acquirer’s date of transition to Australian equivalents to IFRSs;

(b) to apply the rest of AASB 1 in measuring all assets and liabilities for which paragraphs 24 and 25 are not relevant; and

(c) to give all disclosures required by AASB 1 as of the first-time adopter’s own date of transition to Australian equivalents to IFRSs.

IG31 Paragraph 24 of AASB 1 applies if a subsidiary becomes a first-time adopter later than its parent, for example if the subsidiary previously prepared a reporting package under Australian equivalents to IFRSs for consolidation purposes but did not present a full set of financial statements under Australian equivalents to IFRSs.  This may be relevant not only when a subsidiary’s reporting package complies fully with the recognition and measurement requirements of Australian equivalents to IFRSs, but also when it is adjusted centrally for matters such as review of events after the reporting period and central allocation of pension costs.  For the disclosure required by paragraph 41 of AASB 1, adjustments made centrally to an unpublished reporting package are not corrections of errors.  However, paragraph 24 does not permit that subsidiary to ignore misstatements that are immaterial to the consolidated financial statements of its parent but material to its own financial statements.

AASB 129 Financial Reporting in Hyperinflationary Economies

IG32 An entity complies with AASB 121 The Effects of Changes in Foreign Exchange Rates in determining its functional currency and presentation currency.  When the entity prepares its opening Australian-equivalents-to-IFRSs statement of financial position, it applies AASB 129 to any periods during which the economy of the functional currency or presentation currency was hyperinflationary.

IG33 An entity may elect to use the fair value of an item of property, plant and equipment at the date of transition to Australian equivalents to IFRSs as its deemed cost at that date (paragraph 16 of AASB 1), in which case it gives the disclosures required by paragraph 44 of AASB 1.

IG34 If an entity elects to use the exemptions in paragraphs 16-19 of AASB 1, it applies AASB 129 to periods after the date for which the revalued amount or fair value was determined.

AASB 132 Financial Instruments: Presentation

IG35 In its opening Australian-equivalents-to-IFRSs statement of financial position, an entity applies the criteria in AASB 132 to classify financial instruments issued (or components of compound instruments issued) as either financial liabilities or equity instruments in accordance with the substance of the contractual arrangement when the instrument first satisfied the recognition criteria in AASB 132 (paragraphs 15 and 30), without considering events after that date (other than changes to the terms of the instruments).

IG36 For compound instruments outstanding at the date of transition to Australian equivalents to IFRSs, an entity determines the initial carrying amounts of the components on the basis of circumstances existing when the instrument was issued (AASB 132, paragraph 30).  An entity determines those carrying amounts using the version of AASB 132 effective at the end of its first Australian-equivalents-to-IFRSs reporting period.  If the liability component is no longer outstanding at the date of transition to Australian equivalents to IFRSs, a first-time adopter need not separate the initial equity component of the instrument from the cumulative interest accreted on the liability component (paragraph 23 of AASB 1).

AASB 134 Interim Financial Reporting

IG37 AASB 134 applies if an entity is required, or elects, to present an interim financial report in accordance with Australian equivalents to IFRSs.  Accordingly, neither AASB 134 nor AASB 1 requires an entity:

(a) to present interim financial reports that comply with AASB 134; or

(b) to prepare new versions of interim financial reports presented under previous GAAP.  However, if an entity does prepare an interim financial report under AASB 134 for part of the period covered by its first Australian-equivalents-to-IFRSs financial statements, the entity restates the comparative information presented in that report so that it complies with Australian equivalents to IFRSs.

IG38 An entity applies AASB 1 in each interim financial report that it presents under AASB 134 for part of the period covered by its first Australian-equivalents-to-IFRSs financial statements.  In particular, paragraph 45 of AASB 1 requires an entity to disclose various reconciliations (see IG Example 10).

AASB 136 Impairment of Assets and AASB 137 Provisions, Contingent Liabilities and Contingent Assets

IG39 An entity applies AASB 136 in:

(a) determining whether any impairment loss exists at the date of transition to Australian equivalents to IFRSs; and

(b) measuring any impairment loss that exists at that date, and reversing any impairment loss that no longer exists at that date.  An entity’s first Australian-equivalents-to-IFRSs financial statements include the disclosures that AASB 136 would have required if the entity had recognised those impairment losses or reversals in the period beginning with the date of transition to Australian equivalents to IFRSs (paragraph 39(c) of AASB 1).

IG40 The estimates used to determine whether an entity recognises an impairment loss or provision (and to measure any such impairment loss or provision) at the date of transition to Australian equivalents to IFRSs are consistent with estimates made for the same date under previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error (paragraphs 31 and 32 of AASB 1).  The entity reports the impact of any later revisions to those estimates as an event of the period in which it makes the revisions.

IG41 In assessing whether it needs to recognise an impairment loss or provision (and in measuring any such impairment loss or provision) at the date of transition to Australian equivalents to IFRSs, an entity may need to make estimates for that date that were not necessary under its previous GAAP.  Such estimates and assumptions do not reflect conditions that arose after the date of transition to Australian equivalents to IFRSs (paragraph 33 of AASB 1).

IG42 [Deleted by the AASB]

IG43 AASB 136 requires the reversal of impairment losses in some cases.  If an entity’s opening Australian-equivalents-to-IFRSs statement of financial position reflects impairment losses, the entity recognises any later reversal of those impairment losses in profit or loss (except when AASB 136 requires the entity to treat that reversal as a revaluation).  This applies to both impairment losses recognised under previous GAAP and additional impairment losses recognised on transition to Australian equivalents to IFRSs.

AASB 138 Intangible Assets

IG44 An entity’s opening Australian-equivalents-to-IFRSs statement of financial position:

(a) excludes all intangible assets and other intangible items that do not meet the criteria for recognition under AASB 138 at the date of transition to Australian equivalents to IFRSs; and

(b) includes all intangible assets that meet the recognition criteria in AASB 138 at that date, except for intangible assets acquired in a business combination that were not recognised in the acquirer’s consolidated statement of financial position under previous GAAP and also would not qualify for recognition under AASB 138 in the separate statement of financial position of the acquiree (see paragraph B2(f), Appendix B of AASB 1).

IG45 The criteria in AASB 138 require an entity to recognise an intangible asset if, and only if:

(a) it is probable that the future economic benefits that are attributable to the asset will flow to the entity; and

(b) the cost of the asset can be measured reliably.

AASB 138 supplements these two criteria with further, more specific, criteria for internally generated intangible assets.

IG46 Under paragraphs 65 and 71 of AASB 138, an entity capitalises the costs of creating internally generated intangible assets prospectively from the date when the recognition criteria are met.  AASB 138 does not permit an entity to use hindsight to conclude retrospectively that these recognition criteria are met.  Therefore, even if an entity concludes retrospectively that a future inflow of economic benefits from an internally generated intangible asset is probable and the entity is able to reconstruct the costs reliably, AASB 138 prohibits it from capitalising the costs incurred before the date when the entity both:

(a) concludes, based on an assessment made and documented at the date of that conclusion, that it is probable that future economic benefits from the asset will flow to the entity; and

(b) has a reliable system for accumulating the costs of internally generated intangible assets when, or shortly after, they are incurred.

IG47 If an internally generated intangible asset qualifies for recognition at the date of transition to Australian equivalents to IFRSs, an entity recognises the asset in its opening Australian-equivalents-to-IFRSs statement of financial position even if it had recognised the related expenditure as an expense under previous GAAP.  If the asset does not qualify for recognition under AASB 138 until a later date, its cost is the sum of the expenditure incurred from that later date.

IG48 The criteria discussed in paragraph IG45 also apply to an intangible asset acquired separately.  In many cases, contemporaneous documentation prepared to support the decision to acquire the asset will contain an assessment of the future economic benefits.  Furthermore, as explained in paragraph 26 of AASB 138, the cost of a separately acquired intangible asset can usually be measured reliably.

IG49 For an intangible asset acquired in a business combination before the date of transition to Australian equivalents to IFRSs, its carrying amount under previous GAAP immediately after the business combination is its deemed cost under Australian equivalents to IFRSs at that date (paragraph B2(e), Appendix B, AASB 1).  If that carrying amount was zero, the acquirer does not recognise the intangible asset in its consolidated opening Australian-equivalents-to-IFRSs statement of financial position, unless it would qualify under AASB 138, applying the criteria discussed in paragraphs IG45-IG48, for recognition at the date of transition to Australian equivalents to IFRSs in the statement of financial position of the acquiree (paragraph B2(f), Appendix B, AASB 1).  If those recognition criteria are met, the acquirer measures the asset on the basis that AASB 138 would require in the statement of financial position of the acquiree.  The resulting adjustment affects goodwill (paragraph B2(g)(i), Appendix B, AASB 1).

IG50 A first-time adopter may elect to use the fair value of an intangible asset at the date of an event such as a privatisation or initial public offering as its deemed cost at the date of that event (paragraph 19 of AASB 1), provided that the intangible asset qualifies for recognition under AASB 138 (paragraph 10 of AASB 1).  In addition, if, and only if, an intangible asset meets both the recognition criteria in AASB 138 (including reliable measurement of original cost) and the criteria in AASB 138 for revaluation (including the existence of an active market), a first-time adopter may elect to use one of the following amounts as its deemed cost (paragraph 18 of AASB 1):