As part of the U.S. Domestication, the Company has retrospectively converted its Consolidated Financial Statements from International Financial Reporting Standards (“IFRS”) to GAAP. Refer to Note 1, “Description of Business,” for additional details.

Under IFRS, prior to the adoption of GAAP, the Company adhered to the accelerated method of expense recognition for stock-based compensation subject to graded vesting. The application of this accounting method results in more of the grant’s stock-based compensation being recognized in the earlier years of the grant.

Under GAAP, the Company accounts for stock-based compensation using the straight-line expense method, recognizing the expense ratably over the service period, which is generally four years. This change in the timing of the expense recognition is the primary driver for the GAAP transition differences. The resulting decrease in stock-based compensation expense from the transition from IFRS to GAAP was $91.2 million and $109.3 million for the three and six months ended December 31, 2021, respectively.

Under IFRS, prior to the adoption of GAAP, the Company, as lessee, applied the single lease model that is similar to the accounting for a finance lease under GAAP. The expense recognition presented a higher portion of the total expense earlier in the term as a combination of straight-line depreciation of the right-of-use asset and the EIR method applied to the lease liability results in a decreasing rate of interest expense recognition throughout the lease term.

Under GAAP, there is dual classification lease accounting model for lessees: finance leases and operating leases. The Company, as lessee, classified all its leases as operating leases and recognizes a single lease expense, including both a right-of-use asset depreciation component and a interest expense component, on a

straight-line basis throughout the lease term. This resulted in lease expense being reclassified from interest expense into operating expense under GAAP which decreased interest expense by $1.9 million and $3.6 million for the three and six months ended December 31, 2021, respectively. Additionally due to the change in the expense recognition method, the total resulting decrease in lease related expense from the transition from IFRS to GAAP was $0.6 million and $1.1 million for the three and six months ended December 31, 2021, respectively.

The Company invests in equity securities of public and private companies in which the Company does not have a controlling interest or significant influence. Under IFRS, the movement in the valuation of these investments had been recorded in other comprehensive income. Under GAAP, the Company records any impairment of these equity investments, as well as any changes in value resulting from observable price changes as a result of orderly transactions for identical or similar investments of the same issuer, in the condensed consolidated statements of operations. This change in classification is the primary driver of the GAAP transition differences. The resulting increase in other expense, net from the transition from IFRS to GAAP was $22.1 million and $53.1 million for the three and six months ended December 31, 2021, respectively.

In 2018, Atlassian US, Inc. issued $1 billion in aggregate principal amount of the Notes. The Notes were senior, unsecured obligations of the Company, and were scheduled to mature on May 1, 2023, unless earlier exchanged, redeemed or repurchased. The Notes were fully redeemed by the Company in fiscal year 2022.

The exchange feature of the Notes required bifurcation from the Notes and was accounted for as a derivative liability. The fair value of the Notes’ embedded exchange derivative at the time of issuance was $177.9 million and was recorded as original debt discount for purposes of accounting for the debt component of the Notes. This discount was amortized as interest expense using the EIR method over the term of the Notes.

Under IFRS, the Company determined EIR using estimated cash flows, based on the anticipated timing on cash inflows and outflows. Under GAAP, the Company has calculated EIR using contractual cash flows, focusing on the flow of funds as determined by contractual arrangements. The resulting increase in interest expense resulting from the transition from IFRS to GAAP was $16.9 million and $23.0 million for the three and six months ended December 31, 2021, respectively.

Prior to the adoption of GAAP, the Company accounted for income taxes pursuant to International Accounting Standard 12 Income Taxes (“IAS 12”), International Financial Reporting Interpretations Committee 23 Uncertainty over Income Tax Treatments (“IFRIC 23”) and International Accounting Standard 34 Interim Reporting (“IAS 34”). Upon the adoption of GAAP, the Company now accounts for income taxes pursuant to Accounting Standards Codification 740 Income Taxes (“ASC 740”) as noted below:

Deferred tax has been adjusted to remove any backwards tracing components that are permitted under IAS 12 and prohibited under ASC 740. Specifically, backwards tracing is prohibited with regard to adjustments to the beginning of the year balance of a valuation allowance because of a change in judgement about the realizability of related deferred tax assets in future years.

Deferred tax liabilities and assets for investments in subsidiaries, partnerships, corporate ventures, and other entities have been assessed based on the criteria in ASC 740 rather than IAS 12. Where applicable, the Company has adopted the exception criteria in establishing whether a deferred tax asset or liability is required to be recognized. The Company acknowledges that a deferred tax asset or liability will be recognized for any investments that are not subject to the exception criteria.

Under IFRS, when assessing the recognition of deferred taxes on outside basis differences between the carrying amount of an investment for financial reporting purposes and the underlying tax basis in that investment, the Company had adopted the exceptions in IAS 12 such that no deferred tax assets or liabilities had been recorded on outside basis differences that exist for any controlled subsidiaries.

Under GAAP, the Company is required to recognize deferred taxes attributable to outside basis interests in equity accounted investments in addition to fiscally transparent entities such as partnerships and trusts. On that basis, the Company has recorded deferred taxes for the U.S. group’s interest in foreign and domestic fiscally

The realizability of deferred tax assets was considered under GAAP and the determination to maintain a full valuation allowance in the United States and Australia was made. This is a substantially similar result under IFRS. For footnote presentation purposes, all deferred tax assets, liabilities, and valuation allowances are now reported on gross basis rather than a net basis.

The Company recognizes and measures any uncertain tax positions in accordance with ASC 740 rather than IFRIC 23. Accordingly, the Company recognizes, and measures uncertain tax positions based on a two-step process outlined in the Income Tax section of the Critical Accounting Policies.

Under IFRS, the measurement of the stock-based compensation deferred tax asset is based on an estimate of the future tax deduction based on the current stock price at each reporting period. When the expected tax benefits from equity awards exceed the recorded cumulative recognized expense multiplied by the tax rate, the tax benefit up to the amount of the tax effect of the cumulative book compensation expense is recorded in the condensed consolidated statement of operations; the excess is recorded in equity. When the expected tax benefit is less than the tax effect of the cumulative amount of recognized expense, the entire tax benefit is recorded in the condensed consolidated statement of operations.

Under GAAP, the Company measures the stock-based compensation deferred tax asset based on the amount of compensation cost recognized for financial statement purposes. Changes in stock price do not result in a remeasurement of the related deferred tax asset. Upon settlement or expiration, excess tax benefits and tax deficiencies are recognized within the provisions for income taxes.

The tax effects resulting from other accounting changes to pre-tax income, including leases, strategic investments, and notes, are included in the tax provision under GAAP.

The reconciliation between IFRS net loss and GAAP net loss for the three and six months ended December 31, 2021 in the Company’s condensed consolidated statements of operations is as follows (in thousands):


		Three months ended		Six months ended
	Note	December 31, 2021
Net loss - IFRS		$	(77,472)	$	(477,574)
Cost of revenues	(a), (b)	4,970		6,732
Operating expenses	(a), (b)	84,790		99,859
Other expense, net	(b), (c)	(22,024)		(52,895)
Interest income	(b)	(3)		(6)
Interest expense	(b), (d)	(14,944)		(19,351)
Provision for income taxes	(e)	2,355		9,703
Net loss - GAAP		$	(22,328)	$	(433,532)


	Three Months Ended December 31, 2021				Six Months Ended December 31, 2021
	IFRS		GAAP		IFRS		GAAP
Net loss per share attributable to ordinary shareholders:
Basic and diluted	$	(0.31)	$	(0.09)	$	(1.89)	$	(1.72)


	Note	IFRS		Adjustments		GAAP
Assets:
Prepaid expenses and other current assets	(b)	$	72,303	$	(2,301)	$	70,002
Property and equipment, net	(b)	98,554		2,108		100,662
Operating lease right-of-use assets	(b)	267,328		9,948		277,276
Goodwill	(a)	732,666		(9,828)		722,838
Deferred tax assets	(e)	42,760		(32,425)		10,335
Other non-current assets	(b)	60,740		(1,878)		58,862
Total conversion adjustments				$	(34,376)

Liabilities and Stockholders' Equity:
Deferred tax liabilities	(e)	$	26,457	$	(26,145)	$	312
Common stock and Additional paid in capital	(a), (e)	2,710,349		(527,811)		2,182,538
Accumulated other comprehensive income	(b), (c), (e)	53,829		(39,965)		13,864
Accumulated deficit	(a), (b), (c), (e)	(2,428,575)		559,545		(1,869,030)
Total conversion adjustments				$	(34,376)