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:

1. obtaining a clear view of the assets, debts, equity, income, costs and cash flows of the accounting entity;
2. comparisons between entities and between accounting periods of the same entity;
3. identifying items or areas for which users of the financial statements will seek additional information in the notes to the financial statements.

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.

Statement of profit and loss and other comprehensive income

The following categories must now be disclosed in the profit and loss statement:

• operating profit and loss
• investment profit and loss
• financial profit and loss
• taxes on profit
• activities to be discontinued

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 or loss
• profit or loss before financing activities and taxation
• resulting profit or loss

Operating profit and loss

Operating profit includes all income and costs that are not investing or financing activities, income taxes and are not related to discontinued operations. 

Investment profit and loss

The investment profit and loss includes income and expenses related to 

• cash;
• investments in associates and joint ventures and in non-consolidated subsidiaries;
• other assets if their returns are largely independent of the entity’s other assets (for example, rental income or changes in the fair value of investment property).

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).

Financial result of operations

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:

• liabilities arising from transactions the sole purpose of which is to raise funds;
• liabilities arising from other transactions.

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.

Taxes on profits

This category includes all costs and income related to current and deferred tax, including any foreign exchange differences.

Discontinued activities

The content of items in this category is determined by IFRS 5 Fixed Assets Held for Sale and Discontinued Operations.

Items disclosed in the profit and loss statement or in the notes

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:

• revenues
• operating costs by purpose or type
• interests in the profit or loss of associates and joint ventures, if those interests are measured by equity
• taxes on profit
• result from discontinued operations
• items required by IFRS 9 Financial Instruments (in particular, interest income, impairment losses, gains or losses related to the derecognition of a financial asset, income or costs related to the reclassification of financial assets or reclassification from other comprehensive income to the income statement).

If an entity reports operating costs on an itemised basis, it must state in the notes the amount of:

• depreciation
• employee benefits
• impairment losses on non-current assets
• losses from inventory impairment

Other reports

The structure of the statement of financial position and statement of changes in equity has not changed significantly.

Performance indicators

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:

• the entity uses in public communications outside the financial statements,
• the entity uses as the management’s view of the financial performance of the entity as a whole; and
• is not required as a mandatory disclosure item under this or other IFRS.

However, these performance indicators do not include:

• gross profit or loss (sales lowered by cost of goods or products sold)
• operating profit or loss before depreciation, amortisation and impairment losses on non-current assets
• operating profit or loss and income or costs from investments measured using the equity method
• profit or loss before tax
• profit or loss from continuing operations

Conclusion

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.