First time adoption - adjustments to previous years

Question

I know that we need to restate last two years' accounts in the first year we adopt IFRS. I just wonder how we adjust the previous year accounts. Can we adjust the previous accounts with the retained profits?

Answer 1

Read that IFRS 1.11 goes like this "The accounting policies that an entity uses in its opening IFRS statement of financial position may differ from those that it used for the same date using its previous GAAP. The resulting adjustments arise from events and transactions before the date of transition to IFRSs. Therefore, an entity shall recognise those adjustments directly in retained earnings (or, if appropriate, another category of equity) at the date of transition to IFRSs."

So it is clear that you should use retained earnings for adjustments for previous years.