IFRS 18 Presentation and Disclosure in Financial Statements | ATIF

IFRS 18 Presentation and Disclosure in Financial Statements

In April 2024, the International Accounting Standards Board (IASB) introduced IFRS 18, ‘Presentation and Disclosure in Financial Statements’, which replaces the long-standing IAS 1 ‘Presentation of Financial Statements’ standard.

IFRS 18 represents a move towards more integrated reporting. This new standard will assist companies in providing information about their financial performance that is valuable to users of financial statements. It will help in assessing the prospects for future net cash inflows and evaluating management’s stewardship of the company’s economic resources.

The key change introduced by IFRS 18 is the restructuring of the statement of profit or loss, which now separates income and expenses into five distinct categories. It also brings minor changes to the statement of financial position, enhancing overall clarity and structure.

Key Changes in Presentation of Financial Statements: IFRS 18 vs IAS 1

We will review the key changes introduced in IFRS 18 Presentation and Disclosure in Financial Statements compared to IAS 1. These updates bring significant differences in presentation and disclosure requirements. Our focus will be on highlighting the major revisions between the two standards.

Question # 1: What is new in IFRS 18 Presentation and Disclosure in Financial Statements?

IFRS 18 Presentation and Disclosure in Financial Statements replaces the long-standing IAS 1 Presentation of Financial Statements. This new standard introduces significant updates, particularly regarding the structure and content of the statement of profit or loss.

IFRS 18 establishes comprehensive requirements for the presentation and disclosure of financial statements. The Standard comprises 132 authoritative paragraphs, supplemented by Appendices A to D. Notably, all paragraphs within the standard carry equal weight.

While IFRS 18 is a fresh standard, the International Accounting Standards Board (IASB) has retained certain key provisions from IAS 1 and some elements previously included in IAS 1 have now been transferred to other standards.

One of the most impactful changes under IFRS 18 is the introduction of a more logical, consistent, and user-friendly structure for the income statement. Additionally, the standard requires companies to disclose and reconcile Management Performance Measures (MPMs). By mandating the reconciliation and disclosure of MPMs, the standard strengthens transparency.

Question # 2: What is the effective date of IFRS 18 Presentation and Disclosure in Financial Statements?

The application of IFRS 18 will be mandatory for financial years beginning on or after 1 January 2027 and for the respective comparative period 2026. Entities that early adopt IFRS 18 are required to disclose that fact in the notes.

Question # 3: Which entities are impacted by the implementation of IFRS 18?

IFRS 18 will impact globally all entities that follow IFRS Accounting Standards in their financial reporting. Please also read:  Difference Between IFRS / IAS

What are International Financial Reporting Standards (IFRS)? H.Atif

Question # 4: What value does IFRS 18 – Presentation and Disclosure in Financial Statements add?

IFRS 18 adds value for both investors and companies by addressing long-standing issues in financial reporting and aims to enhance the transparency and comparability of financial reporting. We will discuss these changes one by one.

Statement of Profit & Loss

As per para 47, IFRS 18 introduces a new structure for the statement of profit and loss by introducing more organized format for the income statement as now Income and expenses are classified into 5 consistent categories:

1. the operating category,
2. the investing category,
3. the financing category,
4. the Income taxes category, and
5. the discontinued operations category

Operating Category

The operating category consists of company’s operational part and includes all income and expenses that are not classified in the investing, financing, income taxes or discontinued operations categories.

Investing Category

The investing category includes income and expenses from assets that generate returns separately from a company’s business activities including income / expenses from cash and cash equivalents and investments in associates and joint ventures.

Financing Category

These include income and expenses on liabilities such as bank loans, bonds, and any other liability such as lease and pension.

Income Taxes Category

The income taxes category consists of income tax expense or income that are included in profit or loss as per IAS 12 Income Taxes, and any related foreign exchange differences.

https://accountingblogger.com/ias-12-income-taxes/

IAS 12 – Income Taxes | Humayun Atif (CMA, CPA)

Discontinued Operations Category

Income and expenses are classified in the discontinued operations category if they are income and expenses from discontinued operations as required by IFRS 5.

Statement of financial position

IFRS 18 does not bring a fundamental overhaul of the balance sheet structure, but it introduces changes to the presentation and labelling of line items, focusing on improving the clarity, consistency, and comparability of financial statements. Notably, IFRS 18 requires goodwill to be presented as a separate line item, distinct from other intangible assets.

Subtotals

In addition to above, it has also introduced mandatory new subtotals for:

• Operating profit or loss.
• Profit or loss before financing and income taxes.

These subtotals will help users focus on core operations and analysis.

Others

Companies are discouraged from labelling items as ‘other’ and will now be required to disclose more clarity of information.

Interim Financial Reporting

Interim financial reporting IAS 34 was amended to disclose information about MPMs in interim financial statements.

Question # 5: Which other standards are likely to be impacted by the IFRS 18 – Presentation and Disclosure in Financial Statements?

IFRS 18 has also introduced changes to other IFRS Accounting Standards, the most important of which are listed here.

• Interim financial reporting – IAS 34
• Earnings per share – IAS 33
• Statement of Cash Flows – IAS 7

These changes will help cross-company analysis and it will also align with the presentation requirements in the income statement. Now onwards one must disclose information about MPMs in interim reports as per IAS 34.

https://accountingblogger.com/ias-33-earnings-per-share/

IAS 33 – Earnings per Share | Humayun Atif (CMA, CPA)

Question # 6: What are Management-defined Performance Measures (MPMs) as defined by IFRS 18?

Another key enhancement introduced by IFRS 18 is the requirement to disclose Management-defined Performance Measures (MPMs). These are alternative performance metrics like ‘adjusted EBITDA’ that are determined by a company’s management rather than defined by GAAP. According to paragraph 117 of IFRS 18, companies must not only present these measures but also explain how they are calculated and why they are useful. This added transparency is intended to reduce the risk of misleading financial reporting.

Pl also review: https://www.ifrs.org/issued-standards/list-of-standards/ifrs-18-presentation-and-disclosure-in-financial-statements/

pl also review: https://www.cpdbox.com/ifrs/ifrs-18/

Final Thought

IFRS 18 will impact companies across all industries. While it does not change how financial performance is measured, it significantly affects how that performance is presented and disclosed in financial statements. The new standard reshapes the structure of the profit and loss statement, promoting greater consistency, comparability, and transparency in financial reporting.

It is essential for organizations to stay up to date with the requirements of IFRS 18 and begin preparing for its implementation. This includes:

• Reviewing and potentially updating financial reporting processes,
• Upgrading systems to accommodate the new presentation requirements,
• Training staff to ensure a clear understanding of the standard’s presentation and disclosure changes.

A comprehensive revision of the entire reporting system may be necessary, with particular attention to how the profit and loss statement is presented.

It Requires companies to clearly label management-defined performance measures (now called Management-Defined Performance Measures, or MPMs) which will enhance clarity and users can reconcile them with IFRS-compliant figures.

In summary, IFRS 18 Presentation and Disclosure in Financial Statements, is designed to enhance the clarity and comparability of financial statements by improving the way financial information is presented.

ABOUT THE AUTHOR

Humayun Atif | CMA, CPA, CA (FIN), MS-IT, Oracle Certified, CA Articles from Big4

Atif is passionate about Business, Tech, and the written word. He is the author of the book ‘IFRS Made Easy’. He is a Tax and IFRS coach and the founder of accountingblogger.com