IFRS 18 is here
Andrea van der Giezen
by Andrea van der Giezen
The introduction of IFRS 18 marks a new milestone in the evolution of financial reporting standards. It was issued by the International Accounting Standards Board in April 2024, and is effective for periods beginning on or after 1 January 2027.
Why this new Standard?
Starting 2027 IAS1 āpresentation of Financial Statementsā will be replaced by the new IFRS 18 āPresentation and Disclosure in Financial Statementsā because it responds to investorsā demand for better information about companiesā financial performance. IFRS 18 aims to increase the comparability, transparency and usefulness of information. This new IFRS is to improve reporting of financial performance: better information for better decisions. The way information is communicated in the financial statements is expected to improve. Investors and other stakeholders will have a better basis for analyzing and comparing companiesā performance.
What is new? The way how companies recognize and measure items in the financial statement will not change with the IFRS 18. What does change are the following new requirements:
Categorization and subtotals in the statement of profit or loss;
Disclosures about management-defined performance measures (MPMās);
Enhanced guidance on grouping of certain information (aggregation and disaggregation).
I will elaborate on these new requirements below.
Categorization and Subtotals
To provide a consistent structure of the statement of profit and loss IFRS 18 introduces:
Three new defined categories besides the income taxes category and the discontinued operations category:
Operating, Investing and Financing.
To improve the comparability of financial information there are two new required subtotals:
Operating profit and Profit before financing and income taxes.
Management-defined Performance Measures (MPMās)
MPMās are subtotals of income and expenses and are not required or specifically exempted by IFRS. The MPMās are included in public communication outside the financial statements and communicate the managementās view of a companyās financial performance. An example of this is normalized EBITDA, which is frequently reported by for instance listed companies.
Starting 2027, this information needs to be included in the financial statements as well. This should enable users of the financial statements to better understand the financial performance.
IFRS 18 introduces the requirement to disclose in a single note the reconciliation of MPMās back to the IFRS-defined subtotal, an explanation why the MPM is reported, how the MPM is calculated and of any changes in the MPM.
Grouping of information
The IFRS 18 also introduces:
Enhanced requirements for grouping of information, including the requirements for presenting and disclosing operating expenses.
Guidance on whether information should be disclosed in the primary Financial Statements or in the notes.
Disclosures about the qualitative and quantitative disclosures about managing its capital, and items labelled as āotherā: dividends and changes in equity.
Conclusion
With IFRS 18 set to take effect in January 2027, organizations not only have an obligation but also have a great opportunity to refine their financial communication and reporting strategies.
Andrea van der Giezen, RA, RB, is a senior partner and a member of the board of directors of JANĀ©. She is also responsible for compliance and quality within the firm. Andrea has vast experience as an auditor. As well as being a Certified Public Auditor, she is also a Chartered Tax Adviser. Contact Andrea.
GGI member firmJANĀ© Auditors & Business Consultants B.V.Amsterdam, Weesp, Schiphol, Valkenburg and Purmerend, The NetherlandsT: +31 6 52 57 17 49
Advisory, Auditing & Accounting, Tax
JANĀ© Auditors & Business Consultants B.V. is a Dutch audit and tax advisory firm, employing 170 people in four offices near Schiphol and Amsterdam. JANĀ© helps a wide range of (inter)national clients, providing services in the areas of taxation, administration, audits, personnel, salaries, and law.
