Focusing on IFRS consolidated financial statements

Posted by Thai Pham on

One of the steps in an effective IFRS implementation strategy is to assess the impacts of IFRS on the whole organisation. Reporting and disclosure (e.g., financial statements) are likely to be at the forefront of major changes.

Read more: A complete guide to financial consolidation

Focusing on IFRS consolidated financial statements

The preparation of the first IFRS consolidated financial statements may require the capture of information that was not collected under a company’s previous GAAP. Hence, businesses need to identify the differences between IFRS and their previous GAAP in advance so that all of the information required can be produced.

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Specifically, the opening IFRS balance sheet should include a reconciliation of:

  • Equity from previous GAAP to IFRS at the adoption date and at the end of the latest period presented in the organisation’s most recent annual financial statements under previous GAAP
  • Net profit from previous GAAP to IFRS for the last period in the company’s most recent annual financial statements under previous GAAP

The reconciliations should give adequate detail so users can understand the material adjustments to the balance sheet and income statement, and distinguish changes in accounting policies from the correction of errors identifed during transition.

Some adjustments included in the opening IFRS balance sheet will depend on other adjustments (such as deferred taxes and any noncontrolling interests). Therefore, some balances should be calculated after other adjustments have been processed. In general, the recommended sequence of adjustments is as follows:

  • Recognition of assets and liabilities whose recognition is required
  • Derecognition of assets and liabilities whose recognition is prohibited
  • Adjustments to values of recognised assets and liabilities
  • Recognition and measurement of deferred tax
  • Recognition and measurement of noncontrolling interest
  • Adjustment to goodwill balances

As a manner of presentation, for income statements, the entity should select a method of presenting its expenses by either function or nature. While businesses are encouraged to use one of these on the face of the income statement, putting it in the notes is permitted. Additional disclosure of expenses by nature is required if functional presentation is applied.

Also, balance sheet items (asset/liability) should be separated and shown as current and non-current (short term/long term) items.


There is a lot of work to be done during a company’s transition to IFRS—it’s not just about implementing changes in financial statements. That is why having the right approach in the first place is a competitive advantage. Find out more in the whitepaper “Adopting IFRS: A challenge for some. Well worth it for everyone.”


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Topics: Financial Accounting Management Software, Infor SunSystems

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