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AASB 1 - First-time Adoption of Australian Equivalents to International Financia
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Text of the Standard 
Summary 
AIFRS compared to IFRS and old AGAAP 
Interpretations and guidance 
Questions & answers 
Articles 

 
AASB 1: First-time Adoption of Australian Equivalents to International Financial Reporting Standards  
 
 
IFRIC Rejections and Guidance 
     
  1. March 2007 - Current or non-current presentation of derivatives classified as ‘held for trading’ under IAS 39 
  2. November 2006 - Whether the liability component of a convertible instrument should be classified as current or non-current 
  3. June 2005 - Comparatives for prospectuses  
  4. June 2005 - Normal operating cycle 
  5. October 2004
1. March 2007 - Current or non-current presentation of derivatives classified as ‘held for trading’ under IAS 39  
 
Issue: 
 
The IFRIC was asked to provide guidance on whether derivatives that are classified as held for trading in accordance with IAS 39 Financial Instruments: Recognition and Measurement should be presented as current or non-current on the face of the balance sheet date. Such derivatives may be settled more than one year after the balance sheet date.  
 
IFRIC Tentative Decision: 
 
IAS 39 sets out requirements on the recognition and measurement of financial instruments. It does not address how financial instruments should be presented on the face of the balance sheet. Consequently, some believed that the held-for-trading classification under IAS 39 is solely for measurement purposes.  
 
IAS 1 paragraphs 51-62 set out requirements on whether an asset or a liability should be presented as current or non-current on the face of the balance sheet. IAS 1 paragraph 56 states that information about the liquidity and solvency of an entity is useful for users of the financial statements.  
 
In the light of the above requirements, the IFRIC [decided] not to take the issue onto its agenda. However, it noted that some believe that IAS 1 paragraph 62 could be read as implying that financial liabilities that are classified as held for trading in accordance with IAS 39 are required to be presented as current. Therefore, the IFRIC [directed] the staff to recommend the Board to make a minor amendment to IAS 1 paragraph 62 through the Board’s annual improvements process to remove that implication.  
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2. November 2006 - Whether the liability component of a convertible instrument should be classified as current or non-current 
 
Issue: 
 
The IFRIC was asked to consider a situation in which an entity issued convertible financial instruments that, in accordance with IAS 32 Financial Instruments: Presentation, were accounted for as two elements—an equity component (ie the holders’ rights to convert the instruments into a fixed number of equity instruments of the issuer any time before the maturity date) and a liability component (ie the entity’s obligation to deliver cash to holders at the maturity date, which was more than one year after the balance sheet date). The issue was whether the liability component should be presented as current or non-current on the face of the issuer’s balance sheet.  
 
IFRIC Decision: 
 
The IFRIC observed that both IAS 1 Presentation of Financial Statements and the Framework for the Preparation and Presentation of Financial Statements state that information about the liquidity and solvency of an entity is useful to users. The IFRIC also noted that the definitions of liquidity and solvency refer to the availability of cash to the entity. On that basis, the IFRIC believed that the liability component should be classified as non-current.  
 
On the other hand, the IFRIC noted that paragraph 60(d) of IAS 1 states that a liability should be classified as current if the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date. According to paragraph 62 of the Framework, conversion of an obligation into equity is considered as the settlement of a liability. In addition, according to the definition of a financial liability set out in paragraph 16 of IAS 32, a financial liability may be settled through the delivery of a variable number of the issuer’s own equity instruments. Settlement of a liability is not confined to delivery of cash or other assets.  
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3. June 2005 - Comparatives for prospectuses  
 
Issue:  
 
The IFRIC considered whether to amend requirements in IAS 1.36 relating to comparative information, because of perceived practical problems in complying with EU requirements for prospectuses.  
 
IFRIC Decision: 
 
The IFRIC decided not to take the item onto its agenda because it believed that the issue involved a difference of approach between IAS 1 and certain regulatory requirements that were not capable of being resolved merely by issuing an interpretation of IAS 1.  
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4. June 2005 - Normal operating cycle 
 
Issue:  
 
The IFRIC considered an issue regarding the classification of current and non-current assets by reference to an entity’s normal operating cycle.  
 
It was asked whether the guidance in IAS 1.57(a) was applicable only if an entity had a predominant operating cycle. This is particularly relevant to the inventories of conglomerates which, on a narrow reading of the wording, might always have to refer to the twelve-month criterion in IAS 1.57(c), rather than the operating cycle criterion.  
 
IFRIC Decision: 
 
The IFRIC decided not to consider the question further because, in its view, it was clear that the wording should be read in both the singular and the plural and that it was the nature of inventories in relation to the operating cycle that was relevant to classification.  
 
Furthermore, if inventories of different cycles were held, and it was material to readers’ understanding of an entity’s financial position, then the general requirement in IAS 1.71 already required disclosure of further information 
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5. October 2004 
 
Issue 1:  
 
Whether the ‘impracticability’ exception under IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors should also apply to first time adopters.  
 
IFRIC Decision: 
 
There were potential issues, especially with respect to ‘old’ items, such as property, plant and equipment. However, those issues could usually be resolved by using one of the transition options available in IFRS 1.  
 
 
Issue 2:  
 
Whether a specific exception should be granted to first-time adopters to permit entities to translate all assets and liabilities at the transition date exchange rate rather than applying the functional currency approach in IAS 21 The Effects of Changes in Foreign Exchange Rates. 
 
IFRIC Decision:  
 
The position under IFRS 1 and IAS 21 was clear, and that there was no scope for an Interpretation on this topic that would provide any relief. 
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