Transition adjustments
IG58A An entity shall treat an adjustment to the carrying amount of a financial asset or financial liability as a transition adjustment to be recognised in the opening balance of retained earnings at the date of transition to IFRSs only to the extent that it results from adopting IAS 39. Because all derivatives, other than those that are designated and effective hedging instruments, are classified as held for trading, the differences between the previous carrying amount (which may have been zero) and the fair value of the derivatives shall be recognised as an adjustment of the balance of retained earnings at the beginning of the financial year in which IAS 39 is initially applied (other than for a derivative that is a designated and effective hedging instrument).
IG58B IAS 8 applies to adjustments resulting from changes in estimates. If an entity is unable to determine whether a particular portion of the adjustment is a transition adjustment or a change in estimate, it treats that portion as a change in accounting estimate under IAS 8, with appropriate disclosures (IAS 8, paragraphs 32-40).
IG59 An entity may, under its previous GAAP, have measured investments at fair value and recognised the revaluation gain directly in equity. If an investment is classified as at fair value through profit or loss, the pre-IAS 39 revaluation gain that had been recognised in equity is reclassified into retained earnings on initial application of IAS 39. If, on initial application of IAS 39, an investment is classified as available for sale, then the pre-IAS 39 revaluation gain is recognised in a separate component of equity. Subsequently, the entity recognises gains and losses on the available-for-sale financial asset in that separate component of equity until the investment is impaired, sold, collected or otherwise disposed of. On subsequent derecognition or impairment of the available-for-sale financial asset, the entity transfers to profit or loss the cumulative gain or loss remaining in equity (IAS 39, paragraph 55(b)).

Embedded derivatives
IG55 When IAS 39 requires an entity to separate an embedded derivative from a host contract, the initial carrying amounts of the components at the date when the instrument first satisfies the recognition criteria in IAS 39 reflect circumstances at that date (IAS 39, paragraph 11). If the entity cannot determine the initial carrying amounts of the embedded derivative and host contract reliably, it treats the entire combined contract as a financial instrument held for trading (IAS 39, paragraph 12). This results in fair value measurement (except when the entity cannot determine a reliable fair value, see IAS 39, paragraph 46(c)), with changes in fair value recognised in profit or loss.
Measurement
IG56 In preparing its opening IFRS balance sheet, an entity applies the criteria in IAS 39 to identify those financial assets and financial liabilities that are measured at fair value and those that are measured at amortised cost. In particular:
(a) to comply with IAS 39, paragraph 51, classification of financial assets as held-to-maturity investments relies on a designation made by the entity in applying IAS 39 reflecting the entity's intention and ability at the date of transition to IFRSs. It follows that sales or transfers of held-to-maturity investments before the date of transition to IFRSs do not trigger the 'tainting' rules in IAS 39, paragraph 9.
(b) to comply with IAS 39, paragraph 9, the category of 'loans and receivables' refers to the circumstances when the financial asset first satisfied the recognition criteria in IAS 39.
(c) under IAS 39, paragraph 9, derivative financial assets and derivative financial liabilities are always deemed held for trading (except for a derivative that is a designated and effective hedging instrument). The result is that an entity measures all derivative financial assets and derivative financial liabilities at fair value.
(d) to comply with IAS 39, paragraph 50, an entity classifies a non-derivative financial asset or non-derivative financial liability in its opening IFRS balance sheet as at fair value through profit or loss if, and only if, the asset or liability was:
(i) acquired or incurred principally for the purpose of selling or repurchasing it in the near term;
(ii) at the date of transition to IFRSs, part of a portfolio of identified financial instruments that were managed together and for which there was evidence of a recent actual pattern of short-term profit-taking; or
(iii) designated as at fair value through profit or loss at the date of transition to IFRSs.
(e) to comply with IAS 39, paragraph 9, available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale and those non-derivative financial assets that are not in any of the previous categories.

IG53 An entity recognises all financial assets and financial liabilities (including all derivatives) that qualify for recognition under IAS 39 and have not yet qualified for derecognition under IAS 39, except non-derivative financial assets and non-derivative financial liabilities derecognised under previous GAAP in a financial year beginning before 1 January 2004, to which the entity does not choose to apply paragraph 27A (see paragraphs 27 and 27A of the IFRS). For example, an entity that does not apply paragraph 27A does not recognise assets transferred in a securitisation, transfer or other derecognition transaction in financial years beginning before 1 January 2004 if those transactions qualified for derecognition under previous GAAP. However, any further transfers of financial assets to the same securitisation or other transaction in financial years beginning on or after 1 January 2004 qualify for derecognition only if they meet the derecognition criteria of IAS 39.

47A An entity is permitted to designate a previously recognised financial asset or financial liability as a financial asset or financial liability at fair value through profit or loss or as available for sale in accordance with paragraph 25A. The entity shall disclose the fair value of any financial assets or financial liabilities designated into each category and the classification and carrying amount in the previous financial statements.
Appendix A
The following definition is added:
first IFRS reporting period    The reporting period ending on the reporting date of an entity's first IFRS financial statements.
Guidance on Implementing
The guidance on implementing IFRS 1 is amended to read as follows:
IG36 For compound instruments outstanding at the date of transition to IFRSs, an entity determines the initial carrying amounts of the components on the basis of circumstances existing when the instrument was issued (IAS 32, paragraph 30). An entity determines those carrying amounts using the version of IAS 32 effective at the reporting date for its first IFRS financial statements. If the liability component is no longer outstanding at the date of transition to IFRSs, a first-time adopter need not separate the initial equity component of the instrument from the cumulative interest accreted on the liability component (paragraph 28 of the IFRS).
IG52 An entity recognises and measures all financial assets and financial liabilities in its opening IFRS balance sheet in accordance with IAS 39, except as specified in paragraphs 27-30 of the IFRS, which address derecognition and hedge accounting, and paragraph 36A, which permits an exemption from restating comparative information.
Recognition

30 If, before the date of transition to IFRSs, an entity had designated a transaction as a hedge but the hedge does not meet the conditions for hedge accounting in IAS 39 the entity shall apply paragraphs 91 and 101 of IAS 39 to discontinue hedge accounting. Transactions entered into before the date of transition to IFRSs shall not be retrospectively designated as hedges.
Exemption from the requirement to restate comparative information for IAS 39
36A In its first IFRS financial statements, an entity that adopts IFRSs before 1 January 2006 shall present at least one year of comparative information, but this comparative information need not comply with IAS 32 and IAS 39. An entity that chooses to present comparative information that does not comply with IAS 32 and IAS 39 in its first year of transition shall:
(a) apply its previous GAAP to financial instruments within the scope of IAS 32 and IAS 39 in the comparative information;
(b) disclose this fact together with the basis used to prepare this information; and
(c) disclose the nature of the main adjustments that would make the information comply with IAS 32 and IAS 39. The entity need not quantify those adjustments. However, the entity shall treat any adjustment between the balance sheet at the comparative period's reporting date (ie the balance sheet that includes comparative information under previous GAAP) and the balance sheet at the start of the first IFRS reporting period (ie the first period that includes information that complies with IAS 32 and IAS 39) as arising from a change in accounting policy and give the disclosures required by paragraph 28(a)-(f) of IAS 8. Paragraph 28(f) applies only to amounts presented in the balance sheet at the comparative period's reporting date.
In the case of an entity that chooses to present comparative information that does not comply with IAS 32 and IAS 39, references to the 'date of transition to IFRSs' shall mean, in the case of IAS 32 and IAS 39 only, the beginning of the first IFRS reporting period.
Disclosure

Appendix B Amendments to Other Pronouncements
The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this Standard for an earlier period, these amendments shall be applied for that earlier period.
Amendments to IFRS 1
B1. IFRS 1 First-time Adoption of International Financial Reporting Standardsis amended as described below.
Standard
Paragraphs 25A, 27A, 36A and 47A are added and paragraphs 13, 27 and 30 are amended to read as follows:
13 An entity may elect to use one or more of the following exemptions:
(a) ..
(e) compound financial instruments (paragraph 23);
(f) assets and liabilities of subsidiaries, associates and joint ventures (paragraphs 24 and 25); and
(g) designation of previously recognised financial instruments (paragraph 25A).
Designation of previously recognised financial instruments
25A IAS 39 Financial Instruments: Recognition and Measurement permits a financial instrument to be designated on initial recognition as a financial asset or financial liability at fair value through profit or loss or as available for sale. Despite this requirement, an entity is permitted to make such a designation at the date of transition to IFRSs.
27 Except as permitted by paragraph 27A, a first-time adopter shall apply the derecognition requirements in IAS 39 prospectively for transactions occurring on or after 1 January 2004. In other words, if a first-time adopter derecognised non-derivative financial assets or non-derivative financial liabilities under its previous GAAP as a result of a transaction that occurred before 1 January 2004, it shall not recognise those assets and liabilities under IFRSs (unless they qualify for recognition as a result of a later transaction or event).
27A Notwithstanding paragraph 27, an entity may apply the derecognition requirements in IAS 39 retrospectively from a date of the entity's choosing, provided that the information needed to apply IAS 39 to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.

 .Editorial note: Inserted by Amendments to IAS 39, March 2004 with effect for annual periods beginning on or after 1 January 2005. An entity shall apply the amendments to an earlier period when it applies IAS 39 (as revised in 2003) and IAS 32 (as revised in 2003) to that period.

Prospective amendment: Amendments to IAS 39 Financial Instruments: Recognition and Measurement (April 2005) inserts new paragraph AG133 with effect for annual periods beginning on or after 1 January 2006.

         .  Editorial note: Inserted by Amendments to IAS 39, March 2004 with effect for annual periods beginning on or after 1 January 2005. An entity shall apply the amendments to an earlier period when it applies IAS 39 (as revised in 2003) and IAS 32 (as revised in 2003) to that period.
AG131. If the hedged amount for a repricing time period is reduced without the related assets (or liabilities) being derecognised, the amount included in the separate line item referred to in paragraph AG114(g) that relates to the reduction shall be amortised in accordance with paragraph 92.
Editorial note: Inserted by Amendments to IAS 39, March 2004 with effect for annual periods beginning on or after 1 January 2005. An entity shall apply the amendments to an earlier period when it applies IAS 39 (as revised in 2003) and IAS 32 (as revised in 2003) to that period.
AG132. An entity may wish to apply the approach set out in paragraphs AG114-AG131 to a portfolio hedge that had previously been accounted for as a cash flow hedge in accordance with IAS 39. Such an entity would revoke the previous designation of a cash flow hedge in accordance with paragraph 101(d), and apply the requirements set out in that paragraph. It would also redesignate the hedge as a fair value hedge and apply the approach set out in paragraphs AG114-AG131 prospectively to subsequent accounting periods.

.  Editorial note: Inserted by Amendments to IAS 39, March 2004, March 2004 with effect for annual periods beginning on or after 1 January 2005. An entity shall apply the amendments to an earlier period when it applies IAS 39 (as revised in 2003) and IAS 32 (as revised in 2003) to that period.
AG130. As an illustration of the requirements of the previous two paragraphs, assume that an entity scheduled assets by allocating a percentage of the portfolio into each repricing time period. Assume also that it scheduled CU100 into each of the first two time periods. When the first repricing time period expires, CU110 of assets are derecognised because of expected and unexpected repayments. In this case, all of the amount contained in the separate line item referred to in paragraph AG114(g) that relates to the first time period is removed from the balance sheet, plus 10 per cent of the amount that relates to the second time period.

 .Editorial note: Inserted by Amendments to IAS 39, March 2004 with effect for annual periods beginning on or after 1 January 2005. An entity shall apply the amendments to an earlier period when it applies IAS 39 (as revised in 2003) and IAS 32 (as revised in 2003) to that period.
AG129. In addition, any amount relating to a particular time period that has not been derecognised when the time period expires is recognised in profit or loss at that time (see paragraph 89A). For example, assume an entity schedules items into three repricing time periods. At the previous redesignation, the change in fair value reported in the single line item on the balance sheet was an asset of CU25. That amount represents amounts attributable to periods 1, 2 and 3 of CU7, CU8 and CU10, respectively. At the next redesignation, the assets attributable to period 1 have been either realised or rescheduled into other periods. Therefore, CU7 is derecognised from the balance sheet and recognised in profit or loss. CU8 and CU10 are now attributable to periods 1 and 2, respectively. These remaining periods are then adjusted, as necessary, for changes in fair value as described in paragraph AG114(g).