IFRS 18 Study Guide

IFRS 18 - Presentation and Disclosure in Financial Statements

Background to IFRS 18

  • IFRS 18 replaced IAS 1 - Presentation of Financial Statements.
  • Effective for financial years beginning on/after 1 January 2027.

General Requirements of Financial Statements

Objective of Financial Statements (IFRS 18.9)
  • Provide financial information about an entity's assets, liabilities, equity, income, and expenses that is useful to users in assessing:
    • Prospects for future net cash inflows.
    • Management's stewardship of the entity's economic resources.
Complete Set of Financial Statements (IFRS 18.10-IFRS 18.14)
  • The complete set of financial statements includes:
    1. Statement(s) of financial performance for the reporting period.
    2. Statement of financial position as at the end of the reporting period.
    3. Statement of changes in equity for the reporting period.
    4. Statement of cash flows for the reporting period.
    5. Notes for the reporting period (including comparative information).
  • If there is a change in accounting policy or error affecting the beginning of the prior period, a third Statement of Financial Position (SFP) is required as at the beginning of the prior period.
Statement(s) of Financial Performance (IFRS 18.10-IFRS 18.14)
  • Can present as:
    1. Statement of profit or loss and other comprehensive income; OR
    2. Statement of profit or loss AND Statement presenting comprehensive income.
Roles of Primary Financial Statements (IFRS 18.15-IFRS 18.18)
  • Primary Financial Statements:
    • More aggregated and provide structured summaries of recognized assets, liabilities, equity, income, expenses, and cash flows to users for:
    • Obtaining an understandable overview.
    • Making comparisons.
    • Identifying items/areas users may seek additional information for in the notes.
  • Roles of Notes:
    • Provide material information enabling users to understand line items presented in primary financial statements.
    • Supplement primary financial statements with additional information, which is more detailed.
Disclosure Requirements (IFRS 18.21 - IFRS 18.24; IFRS 18 Appendix A)
  • Required to present/disclose information that is:
    • Materially:
    • Information is material if omitting, misstating, or obscuring it could reasonably be expected to influence decisions made by primary users of general purpose financial statements.
Identification of Financial Statements (IFRS 18.11; IFRS 18.25 – IFRS 18.27)
  • Financial statements must clearly identify themselves from other information in the same document (e.g., when AFS included in the same document as Integrated Report).
  • Must prominently disclose and repeat when necessary:
    • Name of the entity or other means of identification.
    • Whether AFS are for individual entity or group.
    • Date of the end of the reporting period/period covered.
    • Presentation currency (IAS 21).
    • Level of rounding for amounts.
  • Other terms may be used instead of those in IFRS 18 (e.g., balance sheet) and for labeling totals, subtotals, and line items (e.g., net income).

Aggregation & Disaggregation (IFRS 18 Appendix A)

Definitions
  • Aggregation:
    • The adding together of assets, liabilities, equity, income, expenses, or cash flows that share characteristics and are included in the same classification.
  • Disaggregation:
    • The separation of an item into component parts that have characteristics that are not shared.
Principles of Aggregation & Disaggregation (IFRS 18.41 – IFRS 18.43; IFRS 18.B16 – IFRS 18.B23)
  • Aggregate items with shared characteristics.
  • Disaggregate items with dissimilar characteristics.
  • Aggregate/disaggregate to present/disclose in primary financial statements/notes.
  • Ensure that aggregation/disaggregation does not obscure material information, as long as it does not conflict with specific requirements of another IFRS.
  • Key characteristics for aggregation/disaggregation:
    • Nature, function within the entity's business activities, measurement basis, size, geographical location/regulatory environment, tax effects, persistence, expected timing of recovery/settlement, liquidity, restriction on asset use or liability transferability.
Examples of Income & Expenses that are Dissimilar (IFRS 18.B78 & IFRS 18.B110)
  • Present/disclose separately:
    • Write-downs of inventories and reversals.
    • Impairment losses on property, plant, and equipment (PPE) and reversals.
    • Income & expenses from restructurings and reversals of provisions for restructuring.
    • Income & expenses from disposals of PPE.
    • Non-recurring (one-off) income & expenses.
Examples of Assets, Liabilities & Equity that are Dissimilar (IFRS 18.B110)
  • Present/disclose separately:
    • PPE by classes (e.g., Buildings / Vehicles / Equipment).
    • Inventories by type (e.g., Raw materials / Work-in-progress / Finished goods).
    • Receivables shown separately for Trade receivables, Related party receivables, Prepayments, etc.
    • Provisions disaggregated according to nature (e.g., employee benefits, decommissioning liabilities).
    • Equity capital & reserves shown by classes (e.g., Share capital / Retained earnings).
Labeling of Items (IFRS 18.B24 – IFRS 18.B26)
  • Labels and descriptions must faithfully represent characteristics and be sufficient for the user to understand.
  • Label with “other” only if no more informative label is available.
Presentation of Operating Expenses (IFRS 18.78-IFRS 18.85)
  • Expenses may be classified in line items by:
    • Nature of expenses (e.g., depreciation, employee benefits).
    • Function of expenses (e.g., cost of sales, administrative expenses).
  • If a line item aggregates items that are materially significant, disclose details in the notes.
  • If a line item is material compared to immaterial items and obscuring occurs, disclose the material item's details in the notes.

Statement of Profit or Loss (IFRS 18.46-IFRS 18.51)

Categories in the Statement of Profit or Loss
  1. Operating Category:
    • Income & expenses from the entity's main business activities.
  2. Investing Category:
    • Income & expenses from individual investment operations.
  3. Financing Category:
    • Income & expenses relating to obtaining finance.
  4. Income Taxes Category:
    • Tax expense or income and related foreign exchange differences.
  5. Discontinued Operations Category:
    • Income & expenses from discontinued operations as required by relevant IFRS.
Examples from the Year Ended 31 December 2026
  • Statement of Profit or Loss would include revenue, costs, and various subtotals as illustrated in
    • Profit or loss before income taxes, and profit or loss from continuing operations.
Specified Main Business Activities (IFRS 18.49-IFRS 18.51)
  • Entities like banks can classify income/expenses that would typically be under investing/financing as operating.
    • Defined by 'specified main business activities' which include activities such as:
    • Investing in specific types of assets (e.g., venture capital, real estate investment trusts).
    • Providing financing to customers (e.g., banks, microlenders).
Other Comprehensive Income (IFRS 18.86-IFRS 18.95)
  • Financial statements must include a separate statement of profit or loss and other comprehensive income or both a profit or loss statement and a statement presenting comprehensive income.
  • Other comprehensive income (OCI):
    • Represents income/expenses recognized outside profit or loss.
    • Must classify OCI into:
    • Items that will be reclassified to profit or loss when specific conditions are met.
    • Items that will not be reclassified to profit or loss.
Examples of Items Included in OCI
  • Changes in revaluation surplus per IAS 16 and IAS 38.
  • Gains/losses from translating foreign financial statements (IAS 21).
  • Other recognized gains or losses under IFRS 9.
Other Statements
  • Statements of financial position, changes in equity, and cash flows show no significant changes from IAS 1.
  • Notes to the financial statements include management-defined performance measures.
Management-Defined Performance Measure (IFRS 18 Appendix A)
  • Management-defined performance measure (MDPM):
    • A subtotal used in external communications that is not specifically required in IFRS and is not categorized under standard measures (e.g., gross profit, operating profit).
  • Examples of MDPMs can include adjusted profit, EBITDA, etc., which must be disclosed appropriately including a reconciliation to the closest IFRS-compliant measure.

Conclusion

  • Understanding the comprehensive framework of IFRS 18 is critical for preparing financial statements that meet global standards.
  • Adequately disclosing and presenting financial performance helps ensure transparency and aids users in decision-making.