Changes in the balances of the account "First-time adoption adjustments".

The application of the International Financial Reporting Standards -IFRS-, regulated by Law 1314 of 2009 and compiled in Decree 2483 of 2018, left in many Colombian companies a debit or credit balance in the account "First-time adoption adjustments" (IFRS 1 - paragraph 11 and Section 35 of the Standard for SMEs - paragraph 35.8), generating an increase or decrease in retained earnings, without losing sight of the caveat that such balance is not susceptible to be distributed to the partners.

The Technical Council of Public Accounting pronounced on the matter in Concept 056 of March 2014, stating that "The increase in retained earnings as a consequence of the transition to IFRS does not correspond to earnings already realized, reason for which it should not be distributed as long as the corresponding inflow of funds is not effective (...)".

Five years have passed since the beginning of the application of the standard and we still find this account without any variation in the financial statements, sometimes because the commercial transactions effectively reflect it; sometimes because the adjustments have been omitted.

The Superintendence of Companies, in its accounting information bulletin for guidance and application of the new accounting and insurance frameworks, made an analysis of the cases that may generate an increase or decrease in this balance. It is worth mentioning some of them:

• Deferred charges: these are adjustments made for the elimination of deferred charges or expenses at the time of conversion, provided that the highest corporate body approves to dispose of the profits of the year to reduce the effect of the adjustment and consequently the value susceptible to distribution.
• Property, plant and equipment: i) If the initial recognition of the asset was the cost attributed to the adjustment made in the statement of financial position, it will be converted into a profit distributable to the partners at the time of its disposal. ii) If the initial recognition was the attributed cost but based on the provisions of Decree 2483 of 2018, the revaluation adjustment is made, the adjustment will be reclassified as revaluation surplus and only upon disposal will it become a profit distributable to the partners.
• Revaluation of equity: inflation adjustments that were adjusted in the conversion to International Standards will be reclassified as distributable income only at the time of capitalization or liquidation of the company.

The regulatory framework requires that the accounting adjustments be made with detailed control, as this is the only way we will be able to determine what fraction of the accounting balance was effectively an inflow of funds, increasing or decreasing the distributable value to the partners. So now we are left with another item in the accounting and tax closing checklist.