A first IFRS set of accounts is built backwards, from a date that has already passed
The instinct on being told to convert to IFRS is to start with the current year. IFRS 1 does not work that way. It requires an opening statement of financial position at the date of transition, which for a single comparative period is the beginning of the year before the one you are reporting on. By the time most conversion projects start, that date is already history, and the accounting policies that will govern it have to be applied to transactions that have already been recorded under something else.
- Why the date of transition, not the reporting date, sets the scope of the work
- Which IFRS 1 choices are optional exemptions and which are mandatory exceptions
- The reconciliations a first IFRS set of accounts has to publish, and why they are read closely
Three dates, and only one of them is the one people think about
Date of transition
The beginning of the earliest period for which full comparative information is presented. This is where the opening statement of financial position is built, and it is the date at which the IFRS 1 elections are made. It is normally two balance sheet dates before the one you are actually reporting.
Comparative period
The year between transition and reporting. It has to be restated in full onto the new framework, including the income statement, so the transactions of a year that has already been closed and audited under the old framework get accounted for again.
First IFRS reporting date
The balance sheet date of the first set of accounts that carries an explicit and unreserved statement of compliance. Everything before it exists to support it.
The scoping consequence. The moment a conversion is contemplated, work out the date of transition first, before anything else. It determines how much history has to be reconstructed, which in turn determines whether the project is a quarter's work or a year's. A conversion decided late in a financial year is materially more expensive than the same conversion decided early in it, for reasons that have nothing to do with accounting difficulty.
Optional exemptions, and mandatory exceptions
IFRS 1's general rule is full retrospective application: prepare the opening balance sheet as though IFRS had always been applied. Two categories of relief sit on top of that rule, and they behave in opposite ways.
Optional exemptions: you may choose
Reliefs from full retrospective application that a first-time adopter may take or leave, sitting in Appendices C, D and E, and covering areas where reconstructing history would be disproportionately burdensome. There are around twenty. The commercially significant ones are past business combinations, the use of a fair value or a revaluation as deemed cost, leases, cumulative translation differences, the designation of previously recognised financial instruments, and borrowing costs.
We deliberately do not reproduce the full list here. It changes: items have been deleted, insurance contracts moved out of the exemptions and into the exceptions when IFRS 17 amended IFRS 1, and a new item was added in 2021. A static list on a web page goes stale within a year or two and then actively misleads, and several widely cited summaries are already out of date in exactly that way. Read the current text at ifrs.org, and check the version date when you do.
Mandatory exceptions: you may not choose
Areas where retrospective application is prohibited, because applying today's knowledge to a past judgement would produce hindsight rather than information. These catch people out, because a project team that has learned to reach for an exemption at every difficulty finds there is nothing here to reach for.
Appendix B lists nine: derecognition of financial assets and financial liabilities; hedge accounting; non-controlling interests; classification and measurement of financial assets; impairment of financial assets; embedded derivatives; government loans; insurance contracts; and deferred tax related to leases and to decommissioning, restoration and similar liabilities. The estimates requirement, which is the one every project meets, is not in Appendix B: it sits in the body of the standard, at paragraphs 14 to 17. So it is nine plus one, which is why some guides say nine and others say ten, and why anything saying five predates IFRS 9.
Two things that are easy to get the wrong way round. Hedge accounting and non-controlling interests are mandatory exceptions, not optional exemptions. And the fourth exception is classification and measurement of financial assets, not financial instruments generally. Both errors are common in secondary summaries, and both change what a project team thinks it is allowed to elect.
The elections are not reversible. An IFRS 1 election is made once, at transition, and it sets the carrying amount of assets that may sit on the balance sheet for decades. Choosing deemed cost for a property portfolio is a decision about depreciation charges, deferred tax and distributable profits for years afterwards. It is worth an afternoon of the finance director's time, not a technical accountant's default.
Note for periods beginning on or after 1 January 2026: the annual improvements package amended the hedge accounting exception, replacing wording inherited from IAS 39 about the conditions for hedge accounting with IFRS 9's qualifying criteria. It is a cross-reference clarification with no intended change in outcome, but if you are working from an older printed copy of the standard, that is the paragraph to re-read.
The reconciliations, and why they get read
A first IFRS set of accounts has to explain how the transition affected the reported position and performance. That means published reconciliations from the previous framework to IFRS, at the date of transition and at the end of the comparative period, together with a reconciliation of the comparative period's result.
Finance teams tend to treat these as a compliance chore at the end of the project. Readers treat them as the most informative page in the document, because a transition reconciliation is the only place where the effect of every accounting policy choice is shown separately and in one place. Analysts read it. So do lenders, and so does anyone doing diligence on the business two years later.
The practical implication. Build the reconciliation as the project's working document from day one rather than deriving it at the end. If every difference is captured with its explanation as it is identified, the disclosure writes itself and the audit is shorter. If it is reconstructed afterwards from two sets of trial balances, it will be a plug, and it will be obvious that it is a plug.
What conversions actually break
Covenants
Loan covenants are written against defined financial measures. Change the framework and the measures change, sometimes materially and usually without anyone in treasury being told. Covenant headroom under the new basis should be modelled before the first reported number, not after.
Tax
Accounting profit is the starting point for a great deal of tax computation, and deferred tax responds to every measurement difference the conversion creates. In India this now has to be worked through under the Income-tax Act 2025, which took effect on 1 April 2026, rather than the 1961 Act that most existing guidance was written against.
Distributable profits and incentive plans
Anything keyed to a reported figure moves when the reported figure moves: dividend capacity, management bonus schemes, earn-outs on a past acquisition, and ratios in shareholder agreements.
Systems and the close calendar
The conversion is the easy part. Producing the same numbers again next quarter, on the same timetable, with the same team, is the part that determines whether the project actually finished.
Where this sits
IFRS Advisory
The overview page, with all five guides listed and the situations each one answers.
Ind AS and IFRS: Where They Differ
Guide 1. The diagnosis: what is actually different between the framework you use and the one you are asked for.
Converting to IFRS
Guide 2. IFRS 1, the transition date, the elections, and the reconciliations a first IFRS set of accounts must disclose.
Revenue, Leases and Financial Instruments
Guide 3. IFRS 15, IFRS 16 and IFRS 9, plus the amendments effective 1 January 2026.
Consolidation, Business Combinations and Foreign Currency
Guide 4. IFRS 3, IFRS 10, IAS 28 and IAS 21.
What Changes Next
Guide 5. IFRS 18 and IFRS 19 from 1 January 2027, and where sustainability reporting has got to.
Send an enquiry
If you have been asked to convert and do not yet know what it involves, the first useful step is establishing your date of transition and how much of it has already passed. That is a short conversation. A partner replies within one business day.
This page is general information, not professional advice. IFRS Accounting Standards, the Indian Accounting Standards notified under section 133 of the Companies Act 2013, and the tax law that interacts with both, all change frequently, and how any of it applies depends on your own facts. The Income-tax Act 2025 replaced the 1961 Act with effect from 1 April 2026. Take professional advice before acting on anything on this page. We are happy to be that adviser, but we do not act on a web page, ours or anyone else's, without one.