The International Accounting Standards Board (IASB) has issued a new standard, IFRS 18: Presentation and Disclosure in Financial Statements. This standard supersedes IAS 1 and aims to enhance the relevance, comparability, and transparency of financial statements, particularly regarding management-defined performance measures.

Effective from 1 January 2027, with the option for earlier application, the standard introduces several key changes:

Structure and content of Profit or Loss

Items are classified into five categories, namely operating, investing, financing, income taxes and discontinuing operations.

Category sub-totals

The new structure mandates sub-totals including Operating Profit, Profit before Financing & Tax, Profit before Tax, and Profit from continuing and discontinued Operations.

Management Performance Measures (MPMs)

All non-GAAP measures identified by management must be disclosed in the notes to the financial statements.

Classification of operating expenses

Companies may present expenses by nature, function, or both. If by function, a breakdown by nature must be disclosed in the notes to the financial statements.

Transition reconciliations

Each line item in the comparative period immediately preceding the year of initial application must be reconciled to the new format.

Management considerations

  • Review income and expense classification to ensure proper categorisation within the relevant IFRS 18 categories.

  • Consider potential inconsistencies between the classification of items in the profit or loss and the disclosure categories used in the cash flow statement.

  • Revisit non-GAAP measures for appropriate disclosure in both financial statements and public communications.

  • Evaluate the overall impact of IFRS 18 on the presentation and understandability of your financial statements.

  • Assess the impact on finance processes and IT systems involved in data collection and financial reporting to ensure a smooth transition.