ey-gl-applying-ifrs-18-07-2024

Applying IFRS: A Closer Look at IFRS 18

Page 1

• Introduction and Publication Details:

  • Applying IFRS: A Closer Look at IFRS 18 (July 2024)

  • Published by EY to assist entities with IFRS 18 compliance.

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Page 2

• Contents Overview:

  • Introduction to IFRS 18: Basics and new definitions.

  • Discussion on roles, aggregation, and labeling of financial statements.

  • Statement of financial performance requirements.

  • Management-defined performance measures (MPMs).

  • Amendments to other standards (IAS 7, IAS 8, etc.).

  • Transition and effective dates.

Page 3

• Key Information from IFRS 18:

  • Replaces IAS 1; aimed at improving financial performance reporting.

  • General and specific requirements set for financial statement presentation and disclosures.

  • Introduces mandatory categories for income and expenses in the statement of profit or loss.

  • Highlights management-defined performance measures (MPMs).

  • Effective from 1 January 2027, with earlier application permitted.

  • Retrospective application required for comparative periods.

Page 4

• Overview of IFRS 18:

  • Aims to enhance clarity and comparability in financial statements.

  • New categories for income and expenses necessitate changes in financial processes.

  • Consequential amendments to IAS 7, IAS 8, and others to improve alignment with IFRS 18.

  • New requirements will affect entities broadly, ensuring better disclosures.

Page 5

• Transitional Provisions and Timing:

  • Reconciliation between IAS 1 and IFRS 18 required for comparative periods.

  • Encouragement for entities to analyze new requirements ahead of the effective date to avoid disruption.

Page 6

• Introduction:

  • IFRS 18 originates from the IASB Primary Financial Statements project initiated in 2014.

  • Designed to make financial statements clearer and meaningful to users.

  • Key improvements include better categorization and labeling of financial line items.

Page 7

• Perspectives on Adoption:

  • IFRS 18 encourages entities to rethink their financial communication strategy.

  • Improvement in comparability and transparency expected.

  • Adoption requires comprehensive planning, affecting data collection and reporting processes.

Page 8

1. Introduction

• Objective and Scope:

  • To ensure financial statements provide relevant information representing the entity's financial position.

  • Specific requirements for presentation in various statements, along with categorized disclosures.

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1.2 New Terms, Definitions, and Labels

• IFRS 18 introduces terminology like "statement of financial performance" to differentiate from IAS 1's nomenclature.

• Defines primary financial statements,

  • Statement of financial performance,

  • Position,

  • Changes in equity,

  • Cash flows.

Page 10

2. Roles, Aggregation and Labeling

• Objective of Financial Statements:

  • To provide useful financial information aiding users in assessing future cash inflows and management's stewardship.

• Materiality:

  • All material information must be presented or disclosed.

  • Requires careful aggregation of financial data without hiding crucial details.

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2.1 The Roles of the Primary Financial Statements and the Notes

• Primary financial statements provide summarized financial data, while notes include detailed disclosures.

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• Identifying Material Information:

  • Clarification on how to present significant information efficiently and accurately in the primary financial statements.

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2.1.1 Information Presented in the Primary Financial Statements

• Differentiates between an item (asset, liability, etc.) and a line item (distinct presentation of an item).

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• Specific Presentation Requirements:

  • Line items required in the statements must fulfill the usefulness criterion without overloading the data.

Page 15

2.1.1.A Minimum, Additional Line Items and Subtotals

• Identifies essential line items required by the standard and gives guidance on how additional items can be presented effectively.

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• Clarifying Presentation:

  • Entities should explain the rationale behind presenting or omitting certain line items.

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2.2 Aggregation and Disaggregation

• Definitions and Principles:

  • Describes what constitutes aggregation and disaggregation, and provides examples of how to apply these principles.

  • Emphasizes the need to report useful information without overwhelming users.

Page 18-20

2.2.1 Principles of Aggregation and Disaggregation

• Outlines how to determine appropriate aggregations/disaggregations based on information characteristics.

• Reiterates the necessity for balances to be reported in an understandable way.

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2.2.3 Examples of Items with Sufficiently Dissimilar Characteristics

• Provides examples of what constitutes sufficiently unique items requiring distinct presentation/disclosure in financial statements.

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2.3 Description of Items

• Requirements for Descriptions:

  • Emphasizes the need for precise language in describing line items and the rationale behind specific labels used.

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Statement of Financial Performance

• Reporting Requirements:

  • Requires all income and expense items to be included, specifying categories for clarity and consistency.

Page 41

4. Management-defined Performance Measures (MPMs)

• Overview of MPMs:

  • Introduces MPMs as crucial measures communicated to users providing insight into management's perspective on financial performance.

Page 85

6 Transition

• Applicability of IFRS 18:

  • Effective for reporting periods from January 1, 2027; encourages earlier adoption with necessary disclosures and reconciliations to aid the transition.