Opening IFRS Statement of Financial Position
Definition
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. The entity recognises all assets and liabilities whose recognition IFRS requires; derecognises items that IFRS does not permit to be recognised; reclassifies items that were classified differently under its previous GAAP; and measures all recognised assets and liabilities under IFRS. The adjustments that arise are recognised directly in retained earnings, or in another category of equity where appropriate, at the date of transition. The entity's first IFRS financial statements then include at least three statements of financial position: one at the date of transition, one at the end of the comparative period, and one at the reporting date. Worked example: a UK company has expensed its development costs under FRS 102. On moving to IFRS, it identifies projects that met the IAS 38 criteria for recognising development costs, with evidence created at the time to show it. Those costs are recognised as an intangible asset in the opening IFRS statement of financial position, and the adjustment is taken to retained earnings. Projects for which that contemporaneous evidence does not exist stay expensed, because the opening balances cannot rely on hindsight. The same exercise runs across the whole balance sheet, so the opening position records every difference between the previous framework and IFRS at a single date. UK note: a UK company prepares this statement whenever it becomes a first-time adopter, most commonly on a Main Market listing or a move from FRS 102 to IFRS, and the records it holds for the transition date decide what the statement can contain.
Complementary Terms
Concepts that frequently appear alongside Opening IFRS Statement of Financial Position in practice.
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.
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.
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.
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.
An intangible asset that arises when a company is acquired for more than the fair value of its net identifiable assets. Goodwill reflects factors such as brand value, customer loyalty, workforce expertise, and synergies that are expected to generate future economic benefits.
In-process research and development (IPR&D) is a project acquired part-way through — bought as a standalone asset or picked up in a business combination — where the underlying work is incomplete at the acquisition date. Its treatment differs sharply from the same activity performed in-house, and the difference is a common source of confusion.
An intangible asset created within the business (R&D output, brand, customer relationships, organisational know-how) rather than acquired through a transaction. IAS 38 conservatism rules make these difficult to capitalise on statutory books — six development-cost capitalisation criteria must all be met.
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.
Further Reading
IAS 38 vs FRS 102 Section 18: Compared
The recognition differences behind most intangible asset adjustments on transition to IFRS.
Read more →What is R&D tax credit and how do UK startups claim it?
UK companies claim R&D tax relief on qualifying R&D spend through their corporation tax return. Under the merged scheme the expenditure credit is 20% and taxable, so the net benefit depends on the company's tax position.
Read more →Related FAQ
How do you account for contingent consideration in a business combination?
Contingent consideration is recognised at fair value on the acquisition date as part of the purchase price, then remeasured at each reporting date with changes recognised in profit or loss under IFRS 3.
Read full answer →What is FRS 102 and how does it differ from full IFRS for intangible assets?
FRS 102 is the UK accounting standard for non-listed companies. Unlike full IFRS, it requires goodwill amortisation (max 10 years if life cannot be estimated) and sets a narrower test for recognising intangibles in a business combination.
Read full answer →How does IFRS 3 require intangible assets to be treated in business combinations?
IFRS 3 requires acquirers to identify and separately recognise all intangible assets at fair value, even those not on the target's balance sheet, with the residual allocated to goodwill.
Read full answer →Put this knowledge to work
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