IFRS 18

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IFRS 18, titled Presentation and Disclosure in Financial Statements, is an International Financial Reporting Standard issued by the International Accounting Standards Board (IASB) in April 2024. It replaces IAS 1 and sets out new requirements for the structure of the statement of profit or loss, focusing on improved comparability and transparency. It is effective for annual reporting periods beginning on or after 1 January 2027.

Structure of the statement of profit or loss

IFRS 18 introduces three new defined categories for income and expenses to ensure that the income statement is structured consistently across all entities.

Operating category

This is the default category. It includes all income and expenses that are not classified as investing, financing, income taxes, or discontinued operations.

Operating Profit = Total Revenue − Operating Expenses (as defined by IFRS 18)

Investing category

Includes income and expenses from assets that generate returns individually and largely independently of other resources (e.g., interest, dividends, and fair value changes on investment property).

Financing category

Includes income and expenses from transactions that involve only the raising of finance, such as loans and bonds.

Mandatory subtotals

IFRS 18 requires all entities to present two specific subtotals in the statement of profit or loss:

1. Operating profit
2. Profit or loss before financing and income tax

Profit before financing and income tax = Operating Profit + Income/Expenses from Investing Category + Share of profit or loss of associates and joint ventures

Management-defined Performance Measures (MPMs)

A key innovation of IFRS 18 is the requirement to disclose "Management-defined Performance Measures" in a single note. These are often referred to as "Non-GAAP" measures.

MPM Reconciliation: > MPM Amount (e.g., Adjusted EBITDA) = Equivalent IFRS Subtotal ± Management Adjustments (Tax & Non-controlling interest effects)

Entities must explain why the measure provides useful information and how it is calculated.

Aggregation and Disaggregation

IFRS 18 introduces strict requirements to ensure that material information is not obscured by aggregating it with dissimilar items.

Aggregation Formula: Total Line Item = ∑ (Material individual items with shared characteristics)

An entity shall not obscure material information by aggregating it with items that have different characteristics. If a line item is material, it must be disaggregated and shown separately, even if it requires a specific unique label.

Disaggregation Logic: > Reported Subtotal = Item A (Material) + Item B (Material) + ∑ (Immaterial Residuals)

References

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