Question

Why was IFRS 1 met with controversy?

Answer 1

IFRS was introduced to streamline the financial accounting and reporting of all the companies at par with the same rules and regulations. However, it was met with several difficulties at the start for the companies following US GAAP because of the complexities it brought with itself.

Some of the issues which created controversy towards IFRS 1 First-time Adoption of International Financial Reporting Standards are:

• Derecognition of some previous GAAP assets and liabilities
• Recognition of some assets and liabilities not recognised under previous GAAP
• The entity should reclassify previous-GAAP opening statement of financial position items into the appropriate IFRS classification
• Adjustments required to move from previous GAAP to IFRSs at the date of transition should be recognised directly in retained earnings or, if appropriate, another category of equity at the date of transition to IFRSs.

In addition to above there were many procedural requirements like disclosures to be made, estimates to be re classified which added to the burden of the companies to adopt IFRS. There have been concerns that rewgardless of the methodology chosen to adopt to IFRS, an organization would need to spend huge human capital to evaluate and modify the financial metrics currently derived from U.S. GAAP financial reports, as the accounting results under IFRS may materially differ from those under current U.S. GAAP.