The introduction of IFRS 18 Presentation and Disclosure in Financial Statements represents a significant and, in some ways, long overdue change to the presentation of the statement of financial position, statement of profit and loss and other comprehensive income as well as the statutory financial statements as a whole.
With the aim to provide investors with clearer insights into companies’ financial performance, the Standard is effective for annual reporting periods beginning on or after 1 January 2027 (with early adoption permissible). We explore the key changes that preparers of financial statements need to be aware of.
What are the key changes?
Improved comparability in the income statement
Currently, the lack of a standardised structure for income statements leads to variations in reporting practices among companies, reducing comparability. IFRS 18 addresses this by introducing three defined categories for income and expenses (operating, investing, and financing) and requiring the inclusion of specific subtotals, including operating profit. This standardised approach enables investors to better analyse and compare companies’ performance.
Enhanced transparency of management-defined performance measures:
Many companies present company-specific performance metrics, but often lack transparency in explaining their calculation and relation to required measures in the income statement. IFRS 18 mandates the disclosure of explanations for these management-defined performance measures related to the income statement, enhancing transparency and subjecting them to audit.
Improved grouping of information in financial statements:
The clarity of companies’ performance analysis can be hindered by overly summarised or detailed information. IFRS 18 offers enhanced guidance on organising information in financial statements and recommends whether to present it in primary financial statements or in accompanying notes. Additionally, it requires increased transparency regarding operating expenses, aiding investors in accessing and comprehending relevant information.
When is it effective?
The standard, effective for annual reporting periods starting on or after January 1, 2027, allows for earlier adoption by companies. The impact of the changes resulting from IFRS 18 will vary depending on companies’ current reporting practices and IT systems.
IFRS 18 supersedes IAS 1 Presentation of Financial Statements, incorporating and refining many of its requirements. It concludes the IASB’s Primary Financial Statements project.
Access to IFRS 18, including the Basis for Conclusions and Illustrative Examples, is available to IFRS Digital subscribers through subscription or purchase options on the IASB’s website.
If you require assistance with understanding or implementing the changes introduced by IFRS 18, please contact our team at Accru for guidance and support.
"