IFRS 18 Presentation and Disclosure in Financial Statements

The standard now explicitly includes ‘operating profit’ as a new subtotal. In addition, income and expenses are to be classified into three new categories – operating, investing and financing. Companies with specified main business activities (new term defined in IFRS 18), classify additional items of income and expense in the operating category that would otherwise be classified in investing or financing.

‘MPMs’ stand for ‘Management-defined performance measures’. These measures capture some, but not all ‘non-GAAP’ or ‘alternative performance measures’ (APMs). IFRS 18 now acknowledges the usefulness of this information in communicating financial performance to users and does so by requiring specific requirements for their disclosures in the notes to the financial statement. 

IFRS 18 brings newly defined ‘roles’ for the primary financial statements and for the notes. The primary financial statements are aimed to provide a ‘useful structured summary’ of the companies’ financial position, performance, cash flows and changes in equity. On the other hand, the role of the notes is to provide additional material information.

Additionally, IFRS 18 provides a basis for aggregation and disaggregation based on shared characteristics, and it provides further guidance for companies to provide users with labels and descriptions in a way that faithfully represent the items. 

IFRS 18 is effective for annual periods beginning on or after 1 January 2027 and applies retrospectively. Companies will need to reconcile each line item presented in the comparative periods for both annual and interim financial statements. For interim periods in 2027, companies will need to present their income and expenses subtotals in accordance with IFRS 18, together with restated comparatives. Therefore, companies need to start assessing IFRS 18 impacts now to ensure a smooth transition during both interim and annual periods in 2027.

IFRS 18 brings wider implications for companies, requiring them to understand the ‘big picture’ to navigate its implementation effectively. Each of the key changes brought by IFRS 18 present both challenges and opportunities that require careful analysis and consideration of its wider implications. Below are examples of the potential wider implications associated with each key change introduced by IFRS 18:

• System modifications allocating effects to different categories (e.g. FX changes, gains and losses on derivatives).
  
  
• Update processes and routines, e.g.:
  • Consolidation adjustments,
  • Charts of accounts and mapping, and
  • KPIs, budgeting and forecasts.
     
• Organisation: upskilling in new routines, and stakeholder communication.
  
  
• Potential effect in metrics used in covenants and compensation policies
  
  
• Others: changes reporting packages, digital tagging; investor communication.

• Increased prominence and therefore scrutiny on MPMs, e.g. audit, users, regulators and other stakeholders.
  
  
• From an organisational perspective, closer alignment between investor relations, financial reporting and other teams is expected. What MPMs to include, why and how should they be calculated?
  
  
• Systems used to track and gather data necessary for MPMs.
  
  
• Routines and processes to create, remove, update and reconcile MPMs.
  
  
• «Educating» investors and other stakeholders on the new performance measures defined by management.

• Updates in systems; charts of accounts and reporting packages for increased granularity, flexibility and consistency.
  
  
• Templates for financial statements will need updating (e.g. notes). Recurrent updates explaining “other” items.
  
  
• Update processes and routines for recording and tracking nature of items going into “other”: shared vs non-shared characteristics.
  
  
• Function vs. nature of presentation of expenses is not a free choice anymore. A change may trigger updates of processes, routines and systems.

Companies should develop a detailed implementation plan, including key milestones and timelines. The roadmap should cover all relevant dimensions, such as systems, processes, investor perspectives, and stakeholder communication.

We presented a roadmap for implementation containing the following steps:

• Mobilise and scope: Be aware and make aware of the wider implications of IFRS 18 in your organisation.
  
  
• Design your model (‘impact assessment’): Bring your high-level thought to specific action and plans. Coordinate actions. What should happen when?
  
  
• Implementation: Prepare documentation supporting the new policies, including key judgements. Explore options for updating systems, processes and controls.
  
  
• Pre-live phase: Follow up pre-live issues. Complete implementation.  Communicate to investors upcoming changes.
  
  
• Go live, communicate: Prepare disclosures to your financial statements and necessary reconciliations.