EFRAG: costs and benefits analysis of Amendment to IFRS1 (First-time Adoption of International Financial Reporting Standards)
23 February 2010
EFRAG claims the Amendment does not benefit users directly. However, the relief is a means of enabling entities to adopt the enhanced disclosures as soon as possible - a benefit to users in the current economic climate.
Summary of the amendment
In March 2009, the IASB amended IFRS 7 Financial Instruments: Disclosures to require enhanced disclosures about fair value measurements and liquidity risk. Due to the urgent need for the enhanced disclosures, the IASB had to forego a normal lead time (at least 6-18 months from issue to the effective date) and required entities to provide the enhanced disclosures in financial years starting on or after 1 January 2009. The IASB concluded that a lack of the lead time could have precluded most entities from presenting comparative information without significant effort and potential hindsight and provided relief that in the first year of application of the amendment, entities need not provide comparative information for the disclosures required by the amendment.
Subsequent to the issuance of the above amendment to IFRS 7, it was brought to the attention of the IASB that the relief regarding restatement of comparatives, as explained above, is not available for entities applying IFRS for the first time. The IASB decided that such entities would be in the same position as existing preparers of IFRS and as such the same relief should apply. They therefore issued the Amendment.
EFRAG’S final assessment of the costs and benefits of the Amendment
Based on its initial analysis and stakeholder views on that analysis, EFRAG’s detailed final analysis of the costs and benefits of the Amendment is set out in the paragraphs below.
Costs for preparers: the Amendment will not result in any incremental costs for preparers.
Costs for users: there will be some incremental costs to users in year one as the Amendment may result in the lack of comparative information in financial statements of those entities electing to make use of the relief.
Benefits for preparers and users: the relief brings benefits to preparers by reducing costs of transition to IFRS.
The Amendment does not benefit users directly. However, the relief is a means of enabling entities to adopt the enhanced disclosures as soon as possible, and this is of benefit to users in the current economic climate.
Conclusion
(a) The benefit of the Amendment is that it will result in decrease of costs of transition to IFRS; and
(b) The Amendment is likely to involve users in additional costs in year one but not thereafter, albeit outweighed by benefits from improved disclosures about liquidity risk and fair value measurements in IFRS 7 that the IASB made effective expediently in response to users’ needs in the current economic climate.
© EFRAG - European Financial Reporting Advisory Group
