Background

The IASB undertook the primary financial statements project in response to investors' concerns about the comparability and transparency of entities’ performance reporting and took up discussions in the project in April 2016.

It continued discussions through May 2019 with the scope slowly taking shape during that time and (i) a fundamental revision of the statements of financial position, cash flows and changes in equity, (ii) guidance on the content of OCI and timing of recycling, (iii) segment reporting, and (iv) the presentation of discontinued operations being excluded from the scope of the project.

Rather, the Board decided to focus on four main areas:

1. Introduction of defined subtotals and categories in the statement of profit or loss
2. Introduction of requirements to improve aggregation and disaggregation
3. Introduction of disclosures about Management-defined Performance Measures (MPMs) in the notes to the financial statements
4. Targeted improvements to the statement of cash flows by amending IAS 7 Statement of Cash Flows

An exposure draft of a proposed new standard was published on 17 December 2019 whereby related requirements in IAS 1 Presentation of Financial Statements were proposed to be brought forward to the new standard with limited wording changes. Other requirements of IAS 1 were proposed to be moved to IAS 8 and IFRS 7.

The IASB discussed feedback on the exposure draft in December 2020 and January 2021 and redeliberated the proposals from March 2021 to June 2023. The IASB published the new IFRS 18 Presentation and Disclosure in Financial Statements on 9 April 2024.

Scope

IFRS 18 applies to all financial statements that are prepared and presented in accordance with IFRS Accounting Standards.

Overview

The main changes in the new standard compared with the previous requirements in IAS 1 comprise:

• The introduction of categories and defined subtotals in the statement of profit or loss that aim at additional relevant information and provide a structure for the statement of profit or loss that is more comparable between entities. In particular:
  • Items of income and expense are required to be classified into categories in the statement of profit or loss:
    • Operating
    • Investing
    • Financing
    • Income tax
    • Discontinued operations
    Classification differs in some cases for entities that, as a main business activity, provide financing to customers or invest on assets
  • Entities are required to present the following subtotals:
    • operating profit or loss
    • profit or loss before financing and income tax
    • profit or loss
    These subtotals structure the statement of profit or loss into categories, with no requirement to present category headings.
  • The line items listed in IFRS 18 are required to be presented unless doing so reduces how effective the statement of profit or loss is in providing a useful structured summary of the entity’s income and expenses
• The introduction of requirements to improve aggregation and disaggregation that aim at additional relevant information and ensure that material information is not obscured. In particular:
  • IFRS 18 provides guidance on whether information should be in the primary financial statements (whose role is to provide a useful structured summary) or in the notes
  • Entities are required to identify assets, liabilities, equity, income and expenses that arise from individual transactions or other events, and to classify them into groups based on shared characteristics, resulting in line items in the primary financial statements that share at least one characteristic. These groups are then separated based on further dissimilar characteristics, resulting in the separate disclosure of material items in the notes. There may be a need to aggregate immaterial items with dissimilar characteristics to avoid obscuring relevant information. Entities should use a descriptive label or, if that is not possible, provide information in the notes about the composition of such aggregated items.
  • Stricter guidance is introduced on whether the analysis of operating expenses is by nature or by function. The presentation should be in a way that provides the most useful structured summary of operating expenses by considering several factors. Presentation of one or more line items for operating expenses classified by function requires disclosure of amounts for five specified expenses, e.g. depreciation.
• The introduction of disclosures on Management-defined Performance Measures (MPMs) in the notes to the financial statements that aim at transparency and discipline in the use of such measures and disclosures in a single location. In particular:
  • MPMs are defined as subtotals of income and expenses that are used in public communications with users of financial statements outside the financial statements, complement totals or subtotals included in IFRSs, and communicate management’s view of an aspect of an entity’s financial performance.
  • Accompanying disclosures are required to be provided in a single note including:
    • A description of why the MPM provides management’s view of performance
    • A description of how the MPM has been calculated
    • A description of how the measure provides useful information about an entity’s financial performance
    • A reconciliation of the MPM to the most directly comparable subtotal or total specified by IFRSs
    • A statement that the MPM provides management’s view of an aspect of the entity’s financial performance
    • The effect of tax and non-controlling interests separately for each of the differences between the MPM and the most directly comparable subtotal or total specified by IFRSs
    • In cases of a change in how the MPM is calculated, an explanation of the reasons for and the effect of the change

The targeted improvements to IAS 7 aim at improved comparability between entities. The changes include:

• Using the operating profit subtotal as the single starting point for the indirect method of reporting cash flows from operating activities; and
• Removing the presentation alternatives for interest and dividends.

Effective date and transition

IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027. The standard is applied retrospectively, with specific transition provisions, and early adoption is permitted.

Additional information

Website of the IFRS Foundation

• Press release
• Video message by the IASB Chair
• One-page quick view of IFRS 18
• Project summary
• Effects analysis
• Feedback statement
• Comparison of requirements in IAS 1 and IFRS 18
• Access to the standard, the illustrative examples, and the basis for conclusions (subscription required)

UK Accounting Plus

• Summary of IFRS 18 Presentation and Disclosures in Financial Statements
• Overview of the project history
• Updated EFRAG endorsement status report
• Need to know newsletter