ENTITIES APPLYING IFRS FOR THE PRESENTATION AND DISCLOSURE OF INFORMATION IN FINANCIAL STATEMENTS
-- WHAT YOU NEED TO KNOW ON OR BEFORE JANUARY 1, 2027
IFRS 18 REPLACES IAS 1
IAS 1 Presentation of Financial Statements sets out the overall requirements for financial statements, including how they should be structured, the minimum requirements for their content and overriding concepts such as going concern, the accrual basis of accounting and the current/non-current distinction.
IAS 1 was the guiding standard for presentation and reporting of financial statements. Last April 2024, the IASB published IFRS 18, a standard that supersedes IAS 1 in the presentation and disclosure of financial information.
IFRS 18 will apply to all entities applying IFRS for presentation and disclosure of financial information on or before January 1, 2027.
PURPOSE AND OBJECTIVE OF IFRS 18
IFRS 18 replaces IAS 1 in response to investors’ demand for better information about companies’ financial performance regarding comparability and transparency. The requirements introduced by IFRS 18 will help improve comparability of financial performance of similar entities, especially related to how operating profit or loss is defined. The new disclosures discussed will also improve transparency.
The objective of IFRS 18 is to set out requirements for the presentation and disclosure of information in general purpose financial statements (financial statements) to help ensure they provide relevant information that faithfully represents an entity’s assets, liabilities, equity, income and expenses.
1. Structure
a. A key feature of IFRS 18 is the requirement to classify all items of income and expenses into one of the five categories of operating, investing, financing, income taxes and discontinued operations. IFRS 18 provides specific guidelines to assist preparers in identifying items to be classified.
b. Required totals and subtotals – The categories are complemented by the requirement to present subtotals and totals for “operating profit or loss,” “profit or loss before financing and income taxes” and “profit or loss” with exceptions and specific presentation choices.
KEY CHANGES/FEATURES
2. Disclosures
a. Management-defined performance measures (MPMs)
- A management-defined performance measure (MPM) refers to a financial metric that companies create to highlight specific aspects of their financial performance that aren't required or listed by standard accounting rules like IFRS. They offer additional insight into financial results beyond the standard financial statements. IFRS 18 requires that all information related to these measures should be disclosed in the financial statements in a single note including a disclosure of how the measure is calculated. The disclosure requirement will enhance transparency and communication effectiveness of the company’s financial performance.
b. Disclosure of expenses by nature, for entities presenting the profit or loss statement by function
- IAS 1 mandates entities to present PNL expenses by nature, function or a combination of both. IFRS 18 includes guidance that assesses which approach is the most appropriate, based on facts and circumstances. In the event where items are prepared by function, an entity is required to disclose information by nature of specific expenses.
3. Aggregation and disaggregation
a. IFRS 18 provides guidance on grouping items based on their shared characteristics. These principles are applied throughout the financial statements and guide the selection of line items to be included in the main financial statements, as well as the information disclosed in the notes. This is to provide useful at the same time structured summaries.
4. Other Changes
a. Amendment to IAS 7
- IAS 7, statement of cash flows is amended to specify “operating profit or loss” as the starting point for reconciling cash flows from operating activities and
- Remove the existing options for the presentation of interest and dividends paid and received
WHAT CAN YOU DO?
The presentation and disclosure adjustments mandated by IFRS 18 could result to system and process modifications for some organizations, so it's important for entities to begin preparing now to ensure readiness of compliance. To ensure smooth transition and effective presentation and disclosure compliance, visit and contact MB&A CPAs to help your company prepare for the changes brought by IFRS 18.
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