IFRS FAQs

1. May a company adopt IFRS early?

Not yet. Once IFRS is being phased in, early adoption criteria must be met in order to do so. Certain companies may adopt IFRS as early as 2009 if events unfold as anticipated and if they meet these criteria:

1. A company must be among the top 20 in their industry (and it must be from the eligible industries as identified by the SEC)
2. IFRS must be the most used accounting standard
3. A “no objection” letter must be sought and obtained from the SEC

2. Does IFRS 1 require retrospective application for first-time adoption?

An entity moving for the first time from U.S. GAAP to IFRS should, as a basic requirement, make full retrospective application of all IFRS effective at the reporting date for an entity’s first IFRS financial statements (although many exemptions and four exceptions exist). The IASB exempts standards for which retrospective application would be too difficult and for those that fail a cost/benefit analysis.

3. Does IFRS 1 require comparative information for first-time adoption?

Comparative information is prepared and presented on the basis of IFRS. Almost all adjustments arising from the first-time application of IFRS are against opening retained earnings of the first period that is presented on an IFRS basis. Certain reconciliations from previous U.S. GAAP to IFRS are also required. IFRS 1 grants exemptions from the requirement to present comparative information for financial instruments and insurance contracts, and for exploration for and evaluation of mineral resources. Certain of these exemptions expired.

4. Under IFRS, will LIFO be permitted for accounting purposes under any circumstances?

No. IFRS does not permit LIFO. Inventories are initially recognized at cost. Inventories are valued at the lower of cost and net realizable value (NRV). NRV is the estimated selling price in the ordinary course of business less estimated costs of completion and estimated selling expenses. IAS 2 requires the cost for items that are not interchangeable or that have been segregated for specific contracts to be determined on an individual item basis. The cost of other items of inventory used is assigned by using FIFO or the weighted average cost formula.

5. May an extraordinary item be recognized under IFRS?

No. All items of income and expense are considered to derive from an entity’s ordinary activities. Extraordinary items as a categorization are prohibited.

6. Are only fixed assets subject to review for impairment?

Per IAS 36, nearly all assets – current and non-current – are subject to an impairment test to ensure that they are not overstated on balance sheets.

7. Under IFRS, are financing costs expensed or capitalized?

Entities may make a policy choice under IAS 23 to choose to capitalize or to expense the costs associated with borrowing that are directly attributable to the acquisition, production or construction of a qualifying asset.