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Alice Šrámková | October 8, 2024
On 9 April 2024, the IASB published a new standard, IFRS 18 Presentation and Disclosures in Financial Statements, which is effective for annual financial statements for periods beginning on or after 1 January 2027. Entities will also need to adjust comparative information for prior periods upon transition to IFRS 18. The obligation to apply the retrospective approach also applies to interim financial statements if the entity prepares them.
IFRS 18 replaces IAS 1 Presentation of Financial Statements. The new standard emphasises the scope of information to be disclosed in financial reports and notes. The structure of the profit and loss statement has undergone fundamental changes.
The role of financial statements is to provide a structured view of an entity’s assets, debts, equity, income, expenses and cash flows that is useful to users of financial statements for:
The different roles of the financial statements and the notes predict that the scope of information disclosed in the notes differs from the scope of information disclosed in the financial statements. In other words, the information disclosed in the financial statements is more aggregated and the notes to the financial statements are intended to provide more detailed information about the assets, debts, equity, income, costs and cash flows of the accounting entity.
The following categories must now be disclosed in the profit and loss statement:
The structure of the statement of other comprehensive income is unchanged from the requirements in IAS 1.
IFRS 18 also contains provisions for those entities whose principal business is investment activities or the provision of financial resources to clients.
The profit and loss account must also include the following total lines:
Operating profit includes all income and costs that are not investing or financing activities, income taxes and are not related to discontinued operations.
The investment profit and loss includes income and expenses related to
Examples of such income and costs are income generated by those assets (for example, dividends), differences between initial and subsequent measurements (changes in fair values), costs incurred in derecognising an asset or incremental costs associated with acquiring or disposing of assets (transaction costs, costs associated with the sale).
In order for an entity to be able to correctly classify the costs and income that are included in profit or loss, it must first distinguish between:
For the first group of liabilities, the financial result includes all income and costs related to the initial and subsequent measurement of the liabilities and incremental costs related to those liabilities, such as transaction costs. For the second group of liabilities, financial performance includes interest income and expense when determined by the entity in relation to the requirements of other IFRSs and income and expense related to changes in interest rates, but again only when determined by the entity in relation to the requirements of other IFRS.
This category includes all costs and income related to current and deferred tax, including any foreign exchange differences.
The content of items in this category is determined by IFRS 5 Fixed Assets Held for Sale and Discontinued Operations.
Similar to IAS 1, IFRS 18 requires certain items to be disclosed separately either directly in the income statement or in the notes. These items include:
If an entity reports operating costs on an itemised basis, it must state in the notes the amount of:
The structure of the statement of financial position and statement of changes in equity has not changed significantly.
IFRS 18 requires disclosure of performance indicators that are defined and used by management so that users of financial statements understand aspects of financial performance as perceived by management and how each financial performance indicator is defined by management.
A performance indicator is defined as the difference between revenues and costs that:
However, these performance indicators do not include:
It is likely that, in order to meet the above requirements, the accounting entity will need to adjust its accounting schedule to meet those requirements. IFRS 18 is effective for accounting periods beginning on or after 1 January 2027, but due to the need for comparable data for prior periods, it is necessary to prepare for the new presentation and disclosure rules for accounting periods beginning on or after 1 January 2026.
IFRS 18 has not yet been adopted by the European Commission but is generally expected to be adopted before its effective date.
