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HMRC internal manual

Corporate Finance Manual

Accounting for corporate finance: International Financial Reporting Standards: IAS 39: transition

First-time adoption of IFRS

IAS 39 must be applied for accounting periods beginning on or after 1 January 2005. Earlier application is permitted only if the entity also applies IAS 32. However, in the UK, under companies’ legislation the earliest date from which IAS may be adopted is 1 January 2005.

The exemption in IFRS 1 (‘First-time Adoption of International Financial Reporting Standards’), which allowed an entity adopting IFRS for the first time before 1 January 2006 to elect for the prior-year comparative information to still be prepared under their existing GAAP, no longer applies.

A company applying IFRS after 1 January 2006 should recognise under IAS 39 all financial assets and liabilities that qualify for recognition, and which have not yet qualified for derecognition.

On initial adoption, subject to certain exceptions with respect to de-recognition (see CFM21740) and hedging (CFM27000), IAS 39 should be applied retrospectively, with the opening balance of retained earning for the earliest presented (for example, with effect from 1 January 2004) and all other comparative amounts adjusted as if the standard had always been in use, except where restating the information would be impracticable, in which case the entity must disclose that fact and indicate the extent to which the information was restated. The transitional arrangements for IAS 39 are now largely of historical significance.

There are detailed provisions relating to the effective date and transition to adopting IAS 39; the information above is only a broad summary.