IFRS 1 first-time adoption of IFRS

Who must apply IFRS 1?

Any company presenting its first IFRS financial statements: the first annual statements in which it makes an explicit and unreserved statement of compliance with IFRS Accounting Standards. That includes companies moving from national GAAP, companies that followed IFRS in substance but never stated compliance, and subsidiaries that reported to their parent under IFRS but published local GAAP accounts. A company that stopped applying IFRS and later returns can apply IFRS 1 again or apply IFRS retrospectively under IAS 8. See what is IFRS and which countries use IFRS.

What are the key dates in first-time adoption?

A company whose first IFRS statements cover the year to 31 December 2027, with one comparative year, has a date of transition of 1 January 2026, and its opening IFRS statement of financial position is prepared at that date. It applies the standards in force at 31 December 2027 to both years, which means IFRS 18 from the start rather than IAS 1. Its last previous GAAP statements are those for 2026. See IFRS 18 transition and comparatives.

What goes into the opening IFRS statement of financial position?

• Recognise every asset and liability IFRS requires, such as lease liabilities and right-of-use assets under IFRS 16.
• Remove items IFRS does not permit, such as capitalised start-up costs or provisions without a present obligation.
• Reclassify items whose category differs, such as redeemable preference shares that are liabilities under IAS 32.
• Measure everything under IFRS, for example expected credit losses under IFRS 9 and deferred tax under IAS 12.

The adjustments are recognised directly in retained earnings, or another category of equity where appropriate, at the date of transition. See IAS 32 debt or equity.

What are the mandatory exceptions?

Areas where retrospective application is prohibited, because it would rely on hindsight or reopen settled transactions:

• Estimates: IFRS estimates at the date of transition are consistent with those made under previous GAAP, unless those were in error.
• Derecognition of financial assets and liabilities is applied prospectively from the date of transition, unless the company chooses an earlier date and has the information.
• Hedge accounting: only hedges that qualify under IFRS 9 at the date of transition are reflected.
• Non-controlling interests, classification and measurement of financial assets assessed on facts at the date of transition, impairment of financial assets, embedded derivatives, government loans and insurance contracts also have specific rules.

What are the optional exemptions?

• Business combinations before the date of transition need not be restated under IFRS 3.
• Deemed cost: property, plant and equipment, investment property and some intangibles can be measured at fair value at the date of transition, or at a previous GAAP revaluation, and that amount used as cost. See the IAS 16 revaluation model.
• Cumulative translation differences on foreign operations can be reset to zero. See IAS 21 foreign currency.
• Leases: lessees can measure lease liabilities at the present value of remaining payments at the date of transition, using the incremental borrowing rate then. See IFRS 16 leases explained.
• Investments in subsidiaries in separate statements, share-based payments that vested before transition, decommissioning liabilities and borrowing costs also have exemptions.
• A subsidiary adopting later than its parent may use the carrying amounts in the parent's consolidated statements.

IFRS 1 in practice: reconciling equity at the date of transition

A company's equity under previous GAAP at 1 January 2026 is CU 24,000 thousand. Moving to IFRS, it uses the fair value of its land as deemed cost, brings its leases onto the balance sheet, recognises expected credit losses on receivables and writes off start-up costs that previous GAAP allowed it to capitalise. Its tax rate is 25%. All figures are in CU thousand.

The pre-tax adjustments add 2,000 to equity and deferred tax takes back 500, a net increase of 1,500. This table, with an explanation of each line, is the reconciliation of equity IFRS 1 requires; the company presents a second one at 31 December 2026, the end of its last previous GAAP period. See deferred tax under IAS 12 and expected credit losses.

What must a first-time adopter disclose?

• Reconciliations of equity at the date of transition and at the end of the latest period under previous GAAP.
• A reconciliation of total comprehensive income for the latest period under previous GAAP.
• An explanation of material adjustments to the statement of cash flows.
• Impairment losses recognised or reversed in the opening statement, and, where fair value is used as deemed cost, the aggregate fair values and adjustments by line item.
• Any errors in previous GAAP statements, shown separately from changes in accounting policies.

What has changed in IFRS 1 recently?

The Annual Improvements to IFRS Accounting Standards, Volume 11, issued in July 2024 and effective for periods beginning on or after 1 January 2026, updated IFRS 1's wording on hedge accounting by a first-time adopter so that it refers consistently to the qualifying criteria in IFRS 9. A subsidiary adopting IFRS from 2027 can also combine IFRS 1 with the reduced disclosures of IFRS 19. See IFRS 19 reduced disclosures.

Is there a US GAAP equivalent of IFRS 1?

No. US GAAP has no first-time adoption standard with a package of exemptions; a company converting to US GAAP generally applies it as if it had always done so, which can mean rebuilding historical records. Because IFRS 1 offers relief that US GAAP does not, the effort of a conversion depends heavily on its direction. See IFRS vs US GAAP key differences.

This guide is general information. It is not tax or legal advice for your situation.