What’s Happening: IFRS 1 Amendment Effective 1 January 2026

Disclaimer: This article is intended for general information only and does not constitute personal financial advice under UAE regulations governing financial blogs and advertisements.

The International Accounting Standards Board (IASB) has issued its latest cycle of “Annual Improvements” to its IFRS Accounting Standards. Among the standards affected is IFRS 1 — First-time Adoption of International Financial Reporting Standards. The amendment becomes mandatory for annual reporting periods beginning on or after 1 January 2026, though early application is permitted.

The overall rationale for these updates is not to overhaul IFRS 1’s fundamental principles, but to correct inconsistencies, clarify the wording, and streamline its interaction with other IFRSs — especially in areas that have given rise to ambiguity in practice.

What Does the Amendment Change?

Hedge Accounting Clarification

The main change relates to hedge accounting when a first-time adopter transitions to IFRS. Paragraphs B5 and B6 of IFRS 1 have been amended to include cross-references to the qualifying criteria for hedge accounting as specified in IFRS 9. In effect, this ensures that entities adopting IFRS for the first time correctly apply the hedge-accounting requirements under IFRS 9 from the outset.

This update is important because hedge accounting — involving derivatives or hedging relationships — can be complex, and transitions often trigger inconsistent accounting if not guided properly. By adding the cross-reference, the amendment reduces the risk of misapplication.

Structural Clarifications and Corrections

In line with the broader “Annual Improvements” initiative, the amendment addresses other relatively minor but meaningful issues: clarifying wording that might have led to divergent interpretations, and correcting unintended consequences or oversights in the previous text.

These changes help ensure consistent application across first-time adopters and improve comparability of financial statements — particularly useful for users of financial reports and stakeholders assessing entities transitioning from local GAAP to IFRS.

Why It Matters — Practical Implications

For entities preparing to adopt IFRS for the first time, the 2026 amendment brings helpful clarity:

• More certainty for hedge accounting: New adopters with hedging relationships now have explicit guidance aligning IFRS 1 with IFRS 9. This reduces transition risk and complexity.

• Consistency and comparability: Clarified language and corrected ambiguities support consistent accounting treatments across different entities and jurisdictions.

• Reduced audit and restatement risk: Early adopters or those transitioning during 2026 should find fewer pitfalls, reducing chances of restatements or regulatory scrutiny.

For accountants, auditors, CFOs, and consultants — especially in jurisdictions shifting from local GAAP to IFRS — it’s a useful signal to review transition checklists, update accounting-policy documents, and ensure hedging contracts and disclosures are in order before the transition date.

What Stays the Same

It is important to emphasize that the amendment does not change the core principles of IFRS 1. The objective remains the same: to require a first-time adopter to prepare high-quality, transparent, comparable financial statements, with full retrospective application of IFRS, subject to limited, defined exemptions for certain areas where retrospective application would impose excessive cost or impracticality.

In particular, the long-standing transitional exemptions (for business combinations, leases under IFRS 16, revenue contracts under IFRS 15, foreign currency advance consideration under IFRIC 22, and others) remain available to first-time adopters in the same way as before.

What You Should Do — Recommendations for Preparers and Stakeholders

1. Plan ahead if you anticipate first-time adoption: Entities currently using local accounting standards and intending to adopt IFRS should start preparing early.

   
   

2. Review hedging contracts and accounting policy elections: Given the hedge-accounting clarification, ensure that hedging contracts qualify under IFRS 9 criteria and policy documentation reflects the amended IFRS 1 wording.

   
   

3. Update internal transition checklists and disclosures templates: Incorporate the amended paragraphs (B5–B6) into transition workpapers and ensure disclosure templates are updated accordingly.

   
   

4. Engage with auditors and external advisors early: To avoid surprises during the first IFRS audit, involve auditors in the transition — especially if your entity uses derivatives or applies hedge accounting.

   
   

5. Consider early adoption if beneficial: Since early application is permitted, entities may benefit from adopting the amendment sooner, especially if this aligns with internal reporting cycles or group consolidation needs.

Conclusion

The 1 January 2026 amendment to IFRS 1 may look modest — primarily refining hedge-accounting guidance and cleaning up wording — but its practical benefits should not be underestimated. For first-time adopters, the changes promote clarity, consistency, and reduce transition risks. In a financial world increasingly globalised and underpinned by transparent reporting standards, even small improvements like these support better comparability and reliability of financial statements. Entities preparing for transition should use the remaining lead time to align accounting policies, update internal processes, and coordinate with auditors — ensuring a smooth first IFRS reporting period under the amended standard.

Photo by Scott Graham