On April 9, 2024, the IASB (International Accounting Standards Board) issued IFRS 18 - Presentation and Disclosure in Financial Statements. IFRS 18 replaces IAS 1 - Presentation of Financial Statements and is effective from 1 January 2027, with early adoption permitted.
The new standard was developed in response to feedback received by the IASB on gaps within the IFRS accounting standard, such as ambiguity on where to classify income and expenses in the income statement, lack of clarity on what subtotals to present above ‘profit or loss’ in the income statement and how to group information presented in the primary financial statements or disclosed in the notes.
These gaps have resulted in diversity in practice, and therefore, by adopting IFRS 18, the IASB would ensure comparability of financial information, transparency of alternative performance measures disclosed in financial statements and increased utility of the financial statements for investors through the provision of helpful information about financial performance.
The first change is the presentation of newly defined subtotals in the income statement. An organisation is now required to present operating profit (or loss) and profit (or loss) before financing and income taxes and profit (or loss). It provides five categories for classifying income and expenses in the income statements - operating, investing, financing, income taxes and discontinued operations.
The second change is the guidance and requirement for identifying management-defined performance measures (MPMs) and the disclosures on management-defined performance measures in the notes to the financial statements.
Each MPM will describe the aspect of financial performance that it communicates, how the MPM is calculated, a reconciliation between the MPM and the most directly comparable subtotal listed in IFRS 18 and how the organisation determined the income tax effect.
The third change in IFRS 18 is on the grouping of information with the introduction of consistent principles for the grouping and labelling of items.
In addition, some organisations will be required to disclose specified expenses by nature in the notes on depreciation, amortisation, employee benefits, impairment losses and reversals of impairment losses and write-downs and reversals of write-downs of inventory. IFRS 18 also introduces limited changes to the cash-flow statement.
The writer is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics.
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