The presentation of information in companies' financial statements is inconsistent under current IFRS regulations. This presents investors with the challenge of comparing the financial performance of companies.
The way in which companies communicate their financial performance will therefore change. The International Accounting Standards Board (IASB) published a new IFRS accounting standard - IFRS 18 Presentation and Disclosure in Financial Statements - in April 2024.
IFRS 18 will have an impact on companies in all sectors that prepare their financial statements in accordance with IFRS accounting standards. The way companies communicate their financial performance will change.
IFRS 18 comes into force on 1 January 2027 and is to be applied retrospectively. Earlier application is permitted. The previous year's comparative figures must be adjusted in the financial year of initial application.
- Introduction of three newly defined categories (operating, investing, financing) in the income statement
- Elimination of numerous disclosure options in the income statement due to mandatory requirements for the allocation of income and expenses to the categories
- Allocation rules vary depending on the main business activities
- Introduction of two new mandatory subtotals in the income statement
- Possibility to present the expenses of the operating category in a combination of cost types and functional costs
- Provisions on disclosures on company-specific performance indicators
- Elimination of the disclosure options for cash flows from dividends and interest in the cash flow statement in accordance with IAS 7
- Change in the starting point, defined as "operating profit or loss", for determining the cash flow from operating activities using the indirect method in the cash flow statement
This is changing in the communication of financial performance
KPMG has published two publications to help you understand IFRS 18 and implement the new requirements.
For those who want to get an initial overview, the Talkbook "IFRS 18: Presentation and Disclosures in Financial Statements" provides a concise summary of the most important aspects of IFRS 18 in German. You will get an overview of what will change, the benefits of the new accounting standard and what companies should do now.
"First Impressions" is a detailed English guide that takes an in-depth look at the new standard. The publication clarifies initial questions and the new regulations are illustrated with numerous graphics and clear examples. It is designed to help you assess the impact on your financial statements and manage the necessary changes to your systems and processes.
Download the publications here to keep up to date with IFRS 18.
What are the advantages?
- Financial statements that contain more relevant, comparable and transparent information will provide users with better information about the financial performance of companies.
- The removal of disclosure options will increase the comparability of companies' financial performance. This applies in particular to the income statement, but also to the cash flow statement.
- Additional company-specific information in the financial statements enables companies to better present their history. Clear rules ensure that entity-specific information is distinguished from non-entity-specific information and reconciled to it, thereby improving the understanding of users of the financial statements.
IFRS 18 improves the transparency and comparability of financial statements in the financial services sector through special regulations for companies such as banks and insurance companies. These relate to the presentation of financial information in financial statements, such as the recognition of income and expenses in the income statement.
What are the next steps?
The IFRS 18 standard does not apply until 1 January 2027, but we recommend dealing with it now, as it will be applied retrospectively and may have an impact on the process landscape.
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Patrick Krätschmer
Partner, Accounting & Process Advisory; Capital Markets Advisory Group
KPMG AG Wirtschaftsprüfungsgesellschaft
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