redenen-voor-e-factuur.jpg
Tax & AccountingApril 12, 2024

IASB issues IFRS 18 on financial statements presentation and disclosure

By: CCH ARM Editorial

The IASB has issued International Financial Reporting Standard (IFRS) 18, Presentation and Disclosure in Financial Statements. With this new standard, the IASB has completed its work to improve the usefulness of information presented and disclosed in financial statements. The IASB believes that IFRS 18 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 financial performance and give investors a better basis for analyzing and comparing companies. These new requirements include:

Improved comparability in income statement

At the present time, there is no specified structure for the statement of profit or loss (income statement). Companies choose their own subtotals to include. Often companies report an operating profit, but the way operating profit is calculated varies from company to company, reducing comparability.

IFRS 18 introduces three defined categories for income and expenses expected to improve the structure of the income statement. These categories involve operating, investing and financing. IFRS 18 requires all companies to provide new defined subtotals, including operating profit. The IASB expects the improved structure and new subtotals to provide investors with a consistent starting point for analyzing 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 currently do not 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.

IFRS 18 therefore requires companies to disclose explanations of those company-specific measures, referred to as “management-defined performance measures,” that are related to the income statement. The IASB intends these measures to improve the discipline and transparency of management-defined performance measures and make them subject to audit.

More useful grouping of information

Investor analysis of companies’ performance is hampered if the information provided by companies is too summarized or too detailed. IFRS 18 sets out enhanced guidance on how to organize information and whether to provide it in the primary financial statements 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.

Effective date

IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027, with earlier application permitted. Changes in companies’ reporting resulting from IFRS 18 will depend on their current reporting practices and information technology systems.

IFRS 18 replaces International Accounting Standard (IAS) 1, Presentation of Financial Statements, although it carries forward many requirements from IAS 1 unchanged. IFRS 18 is the culmination of the IASB’s Primary Financial Statements project.

In addition to the new standard, the IASB has also issued Illustrative Examples and a Basis for Conclusions.

CCH ARM Editorial

Comprised of trusted industry experts, the Wolters Kluwer CCH ARM Editorial Staff are knowledgeable and highly qualified to analyze and offer guidance on the latest, important accounting and audit topics. They ensure every topic is thoroughly researched and meticulously broken down to provide up to date and accurate information. Read more of their insights on CCH Accounting Research Manager.

Back To Top