The next standard in the IFRS series is set to be released in April 2024 – IFRS 18 Presentation and Disclosure in Financial Statements.
IFRS 18 emanates from the IASB’s endeavours within the primary financial statements project. Its objective is to enhance the communication of information within financial statements, providing investors an improved foundation for analysing and benchmarking companies’ performance. This is achieved through bolstering comparability, transparency, and the overall usefulness of information.
Distinct requirements
IFRS 18 will introduce three distinct sets of new requirements, outlined below:
- Mandating new categories and subtotals within the statement of profit or loss, notably including “operating profit.”
- Requiring disclosure regarding management-defined performance measures.
- Providing enhanced guidance on the grouping of information, encompassing both aggregation and disaggregation techniques.
The new Statement of Profit or Loss will be similar to the current Statement of Cash Flows with splits for Operating, Investing and Financing performance numbers.
Income and expenses from investments made in the course of an entity’s main business activities would be classified in operating profit. This would be the case, for example, for income and expenses relating to property, plant and equipment (including gain or loss on disposal or impairment losses).
After Operating profit or loss is reported, there is a category for integral associates and joint ventures. Associates and joint ventures are (and will continue to be) accounted for using equity method. IFRS 18 will define which of them are “integral” and which are not, and to present separately the figures related to one or the other category in the statement of profit or loss, the statement of other comprehensive income, the statement of financial position and the statement of cash flows.
The investing category would include income and expenses from investments that are not part of the entity’s main business and incremental expenses related to those investments (meaning expenses that the entity would not have incurred had the investment not been made).
The financing category would include income and expenses arising from financing activities. This includes income and expenses from cash and cash equivalents. This category also includes interest income and expenses on liabilities that do not arise from financing activities (e.g. net interest income or expense on employee benefit plans or unwinding of the discount on long-term provisions).
Another important feature of the standard is management performance measures (MPM). The standard requires MPMs to be presented in a single note. This will include a description of how each measure is calculated and a reconciliation between each measure and the most directly comparable subtotal or total specified by IFRS.
The standard is effective for year ends beginning on or after 1 January 2027 with early adoption permitted.
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