IFRS 18: More than ‘just presentation and disclosure’? Lessons from emerging interpretation issues

IFRS 18 Presentation and Disclosure in Financial Statements was published by the International Accounting Standards Board (IASB) in April 2024 and sets out the overall requirements for the presentation and disclosure of information in financial statements, both within the primary statements and the notes.

As is now well understood, the IASB developed the standard to improve financial reporting by:

• requiring greater structure in the statement of profit or loss (income statement) to enhance comparability of financial performance both across entities from year-to-year, and between entities. As such entities are required to present two new defined subtotals in the statement of profit or loss (income statement): operating profit and profit before financing and income taxes;
• requiring disclosure of management-defined performance measures (MPMs), being subtotals of income and expenses not specified by IFRS Accounting Standards but used in public communications to communicate management's view of financial performance; and
• introducing new principles for the aggregation and disaggregation of information.

In achieving these aims, a clearly defined focus has been placed on classifying items of income and expenses within the operating, investing, financing, income tax and discontinued operations categories. It is the first three classifications, however, that are perhaps causing more complexity than many would have hoped.

IFRS 18 of course is a presentation and disclosure standard and therefore does not change how entities measure assets, liabilities, income or expenses. However, experience from implementation projects suggests that the practical implications are proving more significant than many businesses, particularly larger groups, initially expected.

As entities have begun assessing the impact of the new requirements, a growing number of questions have been submitted to the IFRS Interpretations Committee. As of the date of writing, the Committee has published five Agenda Decisions:

1. Scope of the Requirement to Disclose Expenses by Nature
2. Classification of Gains and Losses on a Derivative Managing a Foreign Currency Exposure
3. Classification of a Foreign Exchange Difference from an Intragroup Monetary Liability (or Asset)
4. Assessment of a Specified Main Business Activity for the Purposes of the Separate Financial Statements of a Parent
5. Presentation of Taxes or Other Charges that are Not Income Taxes within the Scope of IAS 12

In addition, several further implementation questions are currently under discussion. At the Interpretation Committee's June 2026 meeting, the following topics were considered:

1. Management-defined Performance Measures - Hypothetical Income and Expenses
2. Management-defined Performance Measures - Public Communications
3. Classification of Income and Expenses from Cash and Cash Equivalents
4. Classifying Income and Expenses Applying Paragraph 65(a)(ii) of IFRS 18
5. Assessment of Specified Main Business Activities for a Manufacturer-Lessor
6. Labels of Subtotals
7. Presentation of Operating Expenses

Key takeaways 

A clear theme emerging from these submissions is that companies are encountering practical challenges once they move beyond high-level impact assessments and begin detailed transition work. As is often the case, the real complexity lies in the application of the requirements rather than in the principles themselves.

Many of the questions raised relate to areas that are having a direct effect on the classification of income and expenses, including foreign exchange gains and losses, the assessment of whether a group has a "specified main business activity", and the classification of income and expenses relating to financial liabilities and cash and cash equivalents, as well as the identification and presentation of MPMs.

These are not merely disclosure matters. In many cases, the conclusions reached affect where items are reported within the statement of profit or loss (income statement) and, consequently, the subtotals and performance measures on which investors and analysts are likely to focus. Some entities may therefore not have anticipated the extent to which the new requirements could affect reported results.

Encouragingly, the topics being considered by the Interpretations Committee are providing useful guidance in areas where practice is still developing, including the labelling of subtotals in the statement of profit or loss (income statement) and the operating expense disclosures required when a mixed presentation by function and nature is applied.

While the message emerging from implementation is a familiar one, namely that the devil is in the detail, the Agenda Decisions and ongoing Interpretation Committee discussions are helping to provide greater clarity on the IASB's intended application of the standard and highlighting those areas that are likely to require the most careful judgement during transition.