IFRS 18 Presentation and Disclosure in Financial Statements

The International Accounting Standards Board (IASB) has completed its work to improve the usefulness of information presented and disclosed in financial statements. The new Standard, IFRS 18 Presentation and Disclosure in Financial Statements, will give investors more transparent and comparable information about companies' financial performance, thereby enabling better investment decisions. It will affect all companies using IFRS Accounting Standards.

IFRS 18 introduces three sets of new requirements to improve companies' reporting of their financial performance and give investors a better basis for analysing and comparing companies:

Improved comparability in the statement of profit or loss (income statement)

Currently there is no specified structure for the income statement. Companies choose which subtotals to include. Companies often report an operating profit, but the way operating profit is calculated varies from company to company, reducing comparability. 1

IFRS 18 introduces three defined categories for income and expenses — operating, investing and financing — to improve the structure of the income statement, and requires all companies to provide new defined subtotals, including operating profit. The improved structure and new subtotals will give investors a consistent starting point for analysing companies' performance and make it easier to compare companies.

Enhanced transparency of management-defined performance measures

Many companies provide company-specific measures, often referred to as alternative performance measures. Investors find this information useful. However, most companies do not currently provide enough information to enable investors to understand how these measures are calculated and how they relate to the required measures in the income statement.

Therefore, IFRS 18 requires companies to disclose explanations of the company-specific measures related to the income statement, referred to as management-defined performance measures. The new requirements will improve the discipline and transparency of management-defined performance measures and make them subject to audit.

More useful grouping of information in the financial statements

Investor analysis of companies' performance is hampered if the information companies provide is too summarised or too detailed. IFRS 18 sets out enhanced guidance on how to organise information and whether to provide it in the primary financial statements 2 or in the notes. The changes are expected to provide more detailed and useful information. IFRS 18 also requires companies to provide more transparency about operating expenses, helping investors to find and understand the information they need.

IASB Chair Andreas Barckow said:

IFRS 18 represents the most significant change to companies' presentation of financial performance since IFRS Accounting Standards were introduced more than 20 years ago. It will give investors better information about companies' financial performance and consistent reference points for their analysis.

IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027, but companies can apply it earlier. The changes to companies' reporting resulting from IFRS 18 will depend on their current reporting practices and IT systems.

IFRS 18 replaces IAS 1 Presentation of Financial Statements. It carries forward many requirements of IAS 1 unchanged. IFRS 18 is the outcome of the IASB's Primary Financial Statements project.

1 An IASB study of 100 companies found that more than 60 reported a figure for operating profit, using at least nine different methods to calculate it.

2 The primary financial statements are the statement of profit or loss (income statement); the statement presenting comprehensive income; the statement of financial position (balance sheet); the statement of changes in equity; and the statement of cash flows.