IFRS 18: Presentation and disclosure in financial statements

On 9 April 2024, the International Accounting Standard Board (IASB) completed its project to improve the quality of financial reporting with the publication of a new standard, IFRS 18 – Presentation and Disclosure in Financial Statements.

IFRS 18 will replace IAS 1 – Presentation of Financial Statements and will amend other standards, mainly IAS 7 – Statement of Cash Flows.

The new provisions introduced by IFRS 18 are designed to provide users of financial statements with clearer, more transparent and more comparable information about a company's financial performance.

While many of the provisions of IAS 1 were incorporated unaltered, key changes were made in three main arears, namely:

1. Structuring the statement of profit or loss with three new separate categories (Operating, Investing and Financing) and requiring entities to present specified subtotals, including operating profit or loss
2. Introducing rules and guidance on how to aggregate and disaggregate financial information, both in the primary financial statements and in the notes
3. Improving the way entities report on certain performance indicators (Management-defined Performance Measures - MPMs)

While not the only changes, these changes will be impactful to most reporters and require careful consideration and planning to integrate into upcoming reporting cycles.

Early analysis of the effects of applying IFRS 18 will help entities to prepare for transition, as well as anticipate any consequences to their overall financial reporting suite of reports and financial reporting metrics.

The changes to the structure of the statement of profit and loss will likely require remapping data from financial reporting systems to the financial statements, potentially impacting ratios, key metrics and other measures of performance. Industry specific adaptations available may further complicate this change.

Just as impactful, the new requirements on how to aggregate and disaggregate financial information require consideration not only at a primary statement level but across the complete set of financial statements. This change provides both an opportunity to relook at disclosures holistically, but also the challenge associated with having the data to report on appropriately where it may not have been previously collected at the level of granularity required.

Bringing other published reports / management commentary and the financial statements closer together, the newly introduced required note on Management-defined Performance Measures will need careful consideration and planning as well as potentially necessitating new policies, procedures and controls to maintain compliance.

IFRS 18 will need to be applied retrospectively and is mandatory for reporting periods beginning on or after 1 January 2027, with early application permitted. The EFRAG has recommended the endorsement of IFRS 18 to the European Commission, with final endorsement anticipated before 1 January 2027.

Reporters are encouraged to launch projects to assess the adoption of IFRS 18 early, as stakeholders in the financial reporting ecosystem will likely require advanced warning of what is changing to plan appropriately.

 For more information, refer to our publication on the 10 key points from the new standard on presentation of financial statements or for support in implementing IFRS 18 or any other matters, contact our Corporate Reporting & Accounting Advisory team.