IFRS 1: First-Time Adoption Guide

Q: Who needs to adopt IFRS 1?

Companies preparing their first full IFRS financial statements, including those transitioning from local GAAP or other accounting frameworks.

Q: What is the “Transition Date”?

It’s the start of the earliest comparative period presented in a company’s first IFRS financial statements. It’s the date from which the entity must retrospectively apply IFRS standards and prepare an opening IFRS Balance sheet.

Q: Must companies restate past financials?

Generally yes, but IFRS 1 provides for key exemptions.

Q: What are the main exemptions under IFRS 1?

Common exemptions include: Fair value as deemed cost for property, plant, and equipment; Business combinations instances; Employee benefits; Foreign currency translation.

Q: Is IFRS 1 used only once?

Yes. IFRS 1 is only applied during first-time adoption. Future periods follow standard IFRS.

Q: Is IFRS 1 applicable to SMEs?

No. Entities using IFRS for SMEs follow a separate standard with distinct transition rules.

IFRS 1 – First-Time Adoption of International Financial Reporting Standards

IFRS Guide>>

June 12, 2025

IFRS 1 sets the pace and guidelines for the preparation of financial statements by entities adopting IFRS (International Financial Reporting Standards) for the first time.

Think of it as a transition manual that offers structured guidance to ensure transparency, consistency, and comparability across accounting periods and jurisdictions.

In this article, we explore in-depth what IFRS 1 entails, its history, purpose, key requirements, and practical application – including a Kenyan case study.

Whether you’re an accountant, finance executive, or business owner, this guide will help you understand how to transition to IFRS successfully.

What is IFRS 1?

IFRS 1 (First-Time Adoption of International Financial Reporting Standards) is the Accounting Standard issued by the International Accounting Standards Board (IASB) for companies adopting IFRS for the first time.

Its purpose is to ensure that the entity’s first financial statements under IFRS provide high-quality, transparent, and comparable information, while also minimizing the cost and effort of the transition.

What is an IFRS?

IFRS refers to the International Financial Reporting Standards, a globally accepted set of accounting standards developed by the IASB.

These standards provide consistent guidance on the preparation and presentation of financial statements, promoting comparability, reliability, and transparency across international markets.

Purpose of IFRS 1

IFRS 1 was introduced to facilitate a smooth and standardized transition from local accounting standards (e.g., GAAP) to IFRS.

Its key objectives include:

Transparency and Comparability: Ensures financial information is useful and consistent across time periods and jurisdictions.
Cost-Effective Transition: Provides exemptions to reduce complexity and cost for first-time adopters.
Reliability and Faithful Representation: Guarantees that the first IFRS financial statements are compliant, credible, and reliable for stakeholders.

Brief History of IFRS 1

IFRS 1 was issued in June 2003 by the International Accounting Standards Board (IASB) and became effective on January 1, 2004.
Since then, it has been revised to incorporate newer IFRS standards such as IFRS 15 (Revenue) and IFRS 16 (Leases), and to simplify its application for first-time adopters.

Before IFRS 1, companies faced confusion and inconsistency in transitioning to IFRS from local GAAPs. The standard resolved this by laying out a clear framework for first-time adoption.

When is IFRS 1 Applied?

IFRS 1 is applied when an entity prepares its first set of financial statements using IFRS Accounting Standards, having previously used another national accounting framework such as local GAAP.

Example: A Kenyan firm previously using local GAAP will apply IFRS 1 in the year it prepares its first IFRS-compliant financial statements.

How to Adopt IFRS 1

1. Determine Transition Date

This is the start of the earliest comparative period in your first IFRS financials.

Example: Suppose IFRS reporting starts in 2025 with one year of comparatives, the transition date is January 1, 2024.

2. Prepare Opening IFRS Statement of Financial Position

Restate the Balance Sheet at the Transition date as if IFRS had always been applied.

3. Apply IFRS Standards Retrospectively

Unless exemptions apply, all relevant IFRSs should be applied to previous periods.

4. Use Optional and Mandatory Exemptions

Mandatory: e.g., do not retrospectively revise estimates.
Optional: e.g., do not restate past business combinations.

5. Provide Reconciliations

The entity must disclose:

Reconciliation of Profit or Loss: For the Comparative period
Reconciliation of Equity: From Previous GAAP to IFRS at the transition date and at the end of the latest period under the previous GAAP.

6. Profit or Loss comparison

Explain how transition impacts financial position and performance

Key Requirements of IFRS 1

IFRS 1 mandate an entity to do the following:

Prepare an Opening IFRS balance sheet at the Transition date
Apply IFRS standards retrospectively to all prior periods presented, subject to exemptions
Select Accounting Policies that comply with the latest IFRS standards
Disclose reconciliations of Equity and Profit/Loss between previous GAAP and IFRS
Explain the effect of the transition on the entity’s financial position, performance, and cash flows

IFRS Adoption in Kenya - Key Takeaways

Kenya’s been on the IFRS journey since the early 2000s – especially for listed firms, banks, and parastatals.
SMEs can use a simpler version: IFRS for SMEs.
Regulators like ICPAK and the CBK guide the process and ensure compliance.
Sector-specific rules (like for banks and insurers) help apply tricky standards like IFRS 9 and IFRS 17.
Overall, IFRS has boosted transparency and investor confidence in Kenyan financial reporting.

FAQs on IFRS 1

1. Who needs to adopt IFRS 1?

Companies preparing their first full IFRS financial statements, including those transitioning from local GAAP or other accounting frameworks.

2. What is the “Transition Date”?

It’s the start of the earliest comparative period presented in a company’s first IFRS financial statements.

It’s the date from which the entity must retrospectively apply IFRS standards and prepare an opening IFRS Balance sheet.

3. Must companies restate past financials?

Generally Yes, but IFRS 1 provides for key exemptions.

4. What are the main exemptions under IFRS 1?

Common exemptions include:

Fair value as deemed cost for property, plant, and equipment
Business combinations instances
Employee benefits
Foreign currency translation

5. Is IFRS 1 used only once?

Yes. IFRS 1 is only applied during first-time adoption. Future periods follow standard IFRS.

6. Is IFRS 1 applicable to SMEs?

No. Entities using IFRS for SMEs follow a separate standard with distinct transition rules.

Conclusion

IFRS 1 sets the foundation for entities transitioning to full International Financial Reporting Standards.

By mandating transparency, consistency, and comparability, IFRS 1 ensures that financial statements reflect an accurate and reliable financial position across all periods presented.

For companies in Kenya and beyond, especially those in regulated industries or seeking international investment, adopting IFRS through IFRS 1 is not just a compliance exercise – it’s a strategic financial move.

Need Help with IFRS 1 Adoption?

Successfully transitioning to IFRS Accounting Standards requires expert guidance.

At Mugo & Co., we offer professional accounting and financial reporting advisory services to help you implement IFRS 1 effectively and align your financial statements with international best practices.

Contact Mugo & Co. today to schedule a consultation and begin your IFRS journey with confidence.

Disclaimer

This article is for informational purposes only and does not constitute professional accounting or auditing advice. Please consult a qualified advisor or reach out to Mugo & Co. for tailored IFRS 1 implementation support.

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