Although 2011 is the official year for certain companies to begin reporting under IFRS (International Financial Reporting Standards), for many of these companies the "as at" date for the transition balance sheet is less than a month away.
TORONTO, Dec. 15 /CNW/ - It's crucial to remember that when IFRS financial statements are prepared, comparative figures must be included, and an opening balance sheet at the beginning of the comparative year is needed to do this. Companies with a calendar year-end will need to prepare an IFRS opening balance sheet as at January 1st, 2010. This means that some companies may have a lot to do in a relatively short time.
"Companies that fall behind in their IFRS preparations could be significantly impacted," said Bruce Byford, the IFRS practice leader in Alberta for Grant Thornton LLP. "As 2011 approaches, time and expertise will be at a premium, so costs are likely to climb. On top of that, there are many decisions to be made before you can complete an opening balance sheet under IFRS."
Essentially, the opening balance sheet includes amounts for all assets, liabilities and equity as though the company had always been applying IFRS. But what method should companies use to calculate these opening amounts? Generally, two options are available: Apply IFRS retrospectively (i.e., recalculate the historical carrying amount using IFRS), or determine the fair value of the asset on transition and use this amount as the deemed cost going forward. "Determining which method is right requires some thought and analysis," observed Mr. Byford. "For example, some companies may find it difficult to recalculate IFRS carrying values if the necessary data is not readily available or would be costly to obtain. In this scenario, using fair value as deemed cost may be an attractive alternative."
In the article, IFRS: the "fair value" decision, Grant Thornton IFRS practitioners explore these initial options and decisions in more detail and also look at a number of fair value-based measurement models available under IFRS going forward. "The opening balance sheet is not the only area where fair value and IFRS intersect," states Mr. Byford. "There are also a number of optional valuation models that can be adopted for ongoing accounting under IFRS. While the opening balance sheet option is a one-time decision, these ongoing models are generally more complex. Companies will want to consider their implications carefully as impacts will be long-term."
With 2010 less than a month away, companies need to evaluate their options. The concept of fair value may play a significant role in these decisions, both for the initial transition balance sheet and for ongoing accounting practices.
For more on this topic, download the Grant Thornton article, IFRS: the "fair value" decision-make the right choice for your business.
Notes to editors:
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