Summary of IFRS 18 Presentation and Disclosure in the Financial Statements

IFRS in the text below refers to IFRS® Accounting Standards

IFRS 18 arises from IASB’s work on the primary financial statements project. It will improve how information is communicated in financial statements and give investors a better basis for analysing and comparing companies’ performance by increasing comparability, transparency, and usefulness of information.
IFRS 18 will introduce three sets of new requirements (see further information below):

•  New required categories and subtotals in the statement of profit or loss, including “operating profit”
•  Disclosure about management-defined performance measures
•  Enhanced guidance on grouping of information (aggregation and disaggregation)

New required categories and subtotals in the statement of profit or loss

IFRS 18 includes new categories and subtotals in the profit or loss statement to respond to investors’ concerns in comparing financial performance.
Three new defined categories are introduced to provide a consistent structure of the statement of profit or loss:

•  Operating
•  Investing
•  Financing

To new required subtotals are introduced to enable analysis:

•  Operating profit
•  Profit before financing and income taxes

Companies with financing and investing activities as their main business will include specific income and expenses in their operating profit that for other companies would be included in the investing or financing categories.

Disclosure about management-defined performance measures

Today investors find lack of transparency when it comes to how non-GAAP/APMs are calculated. To bring transparency and discipline in the use of these measures IFRS 18 defines a subset of such measures referred to as management-defined performance measures (MPMs) and requires the disclosures in the financial statements in a single note. These will also be subject to audit.

Enhanced guidance on grouping of information

These requirements respond to investors’ concerns that some companies don’t provide enough detailed information about aggregation and disaggregation, and that important information is obscured. IFRS 18 introduces enhanced requirements for grouping of information, provides guidance on whether information should be in the primary financial statements or in the notes, and requires disclosures about items labelled as “other”.

Summary

IFRS 18 will replace IAS 1 Presentation of Financial Statements but will not change how companies recognise and measure items in the financial statements. However, most companies will expect changes in the presentation of the statement of profit or loss and disclosure in the notes. IASB will also be issuing limited amendments to other IFRS Accounting Standards, including IAS 7 Statement of Cash Flows.

Source: IFRS Foundation 2024