IFRS 18, the new IFRS accounting standard effective from 1 January 2027, introduces three main changes; the presentation of newly defined subtotals in the income statement, new requirements for identifying management-defined performance measures (MPMs) and principles for the grouping and labelling of items.
It is important to note that IFRS 18 does not change how organisations recognise and measure items in their financial statements. Therefore, IFRS 18 would not affect an organisation's overall financial performance and financial position.
While IFRS 18 is expected to affect all organisations that apply IFRS accounting standards, the new standard's impact will vary depending on the processes applied by an organisation and its business activities. IFRS 18 will affect how organisations present information in the primary financial statements (income statement, balance sheet, statement of cash flows and statement of changes in equity) and the notes. Organisations should, therefore, take note of the following impacts.
An organisation may have to change its current classification of income and expenses in the income statements. This change in presentation could also require changes to an organisation's current reporting systems and processes to ensure that income and expenses are classified in the appropriate categories, the identification and provision of disclosures on MPMs are made accurately, the grouping of information applying the aggregation and disaggregation principles are correct and consistent, the disclosure of expenses by nature, and the changes to the cash flow statement are made accurately.
Organisations might also need to revisit their processes for data collection and management. IFRS 18 will also have an effect on contracts, agreements and compensation arrangements.
The financial statement is usually the basis for monitoring compliance with contracts and agreements and when a new standard introduces changes to the presentation of those financial statements, it could affect how contracts are interpreted and applied.
For example, loan covenants referencing subtotals in the financial statements could be impacted by changes to the subtotals. Also, management remuneration policies linked or derived using measures in the income statements, such as operating profit, could be affected.
Akinyemi Awodumila is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
