Date of Transition
Definition
The date of transition is a defined term in IFRS 1, First-time Adoption of International Financial Reporting Standards. It is the beginning of the earliest period for which an entity presents full comparative information under IFRS in its first IFRS financial statements. The date matters because it is where the entity's IFRS record begins: the entity prepares an opening IFRS statement of financial position at the date of transition, and that balance sheet is the starting point for everything reported afterwards. IFRS 1 requires IFRS to be applied retrospectively, but it does not allow hindsight on estimates. Estimates in the opening balances reflect what was known at the date of transition, so the evidence supporting those balances must exist from that date rather than being assembled later. Worked example: an entity's first IFRS financial statements are for the year to 31 December 2027, with one comparative year. Its date of transition is 1 January 2026, and its opening IFRS statement of financial position is prepared at that date. Development projects, acquired intangibles and other balances are measured under IFRS at 1 January 2026, using records that existed then. An entity that decides during 2027 to report under IFRS therefore finds that its date of transition has already passed, and the quality of its records from that earlier date determines how much of its opening position it can support. UK note: the date of transition becomes relevant for a UK company seeking a Main Market listing, where historical financial information is presented under UK-adopted IFRS, or for a company moving from FRS 102 to IFRS for another reason. FRS 102 Section 18 and IAS 38 do not treat every intangible item identically, so opening balances can change.
Complementary Terms
Concepts that frequently appear alongside Date of Transition in practice.
A first-time adopter is an entity that presents its first IFRS financial statements, as defined in IFRS 1, First-time Adoption of International Financial Reporting Standards. Its first IFRS financial statements are the first annual financial statements in which it adopts IFRS through an explicit and unreserved statement of compliance with IFRS.
The opening IFRS statement of financial position is the balance sheet a first-time adopter prepares at its date of transition under IFRS 1, First-time Adoption of International Financial Reporting Standards. It is the starting point of the entity's IFRS record, and four things happen in preparing it.
Deemed cost is a defined term in IFRS 1, First-time Adoption of International Financial Reporting Standards: an amount used as a surrogate for cost or depreciated cost at a given date. It gives a first-time adopter a practical starting measure for certain assets in its opening IFRS statement of financial position, in place of reconstructing their full cost history.
The International Accounting Standard governing the recognition, measurement, and disclosure of intangible assets. IAS 38 requires that an intangible asset be identifiable, controlled by the entity, and expected to generate future economic benefits.
The section of the UK and Republic of Ireland financial reporting standard that governs the recognition, measurement, and disclosure of intangible assets other than goodwill for entities not applying IFRS. Section 18 measures intangible assets at cost less accumulated amortisation and impairment losses, or under the revaluation model where fair value can be determined by reference to an active market (FRS 102 18.18), which is rare in practice.
The period over which an intangible asset is expected to contribute to future cash flows, determining the duration of amortisation. Useful life may be finite (e.g., a patent term) or indefinite (e.g., a perpetually renewed trademark), and its estimation requires careful analysis of technological, legal, and competitive factors.
The US GAAP standard governing the recognition, measurement, and impairment of long-lived tangible and certain intangible assets. ASC 360 requires a two-step impairment test: first, a recoverability test comparing undiscounted future cash flows to carrying value; second, if impairment is indicated, measurement of the loss as the excess of carrying value over fair value.
Development costs are the expenditure incurred applying research findings to a plan or design for a new or substantially improved product, service, process or system before it enters commercial production or use. Under IAS 38 (IFRS — the default framework for UK groups reporting under adopted IFRS), the standard divides the work into two phases and treats them differently.
Further Reading
FRS 102 vs IFRS: Intangible Asset Rules
Where the two frameworks differ on intangible assets, and what changes when a UK company moves to IFRS.
Read more →AI and IAS 38: When Can You Capitalise AI Development Costs?
IAS 38 sets six criteria for capitalising development costs, but applying them to AI projects is fraught with ambiguity. This article maps each criterion to AI development realities and provides practical guidance for CFOs and accountants navigating the recognition question.
Read more →Related FAQ
What is the difference between tangible and intangible assets?
Tangible assets have physical form: land, buildings, machinery, vehicles and stock. Intangible assets have none: they are identifiable non-monetary assets such as patents, trade marks, software and customer contracts.
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