IFRS 18 - Presentation and Disclosure in Financial Statements

Core Principle: IFRS 18 gives companies more flexibility in how they present financial performance, while ensuring consistency and comparability.

Income Statement Structure

IFRS 18 requires that the Statement of Profit or Loss and Other Comprehensive Income be presented based on operating, investing, and financing categories.

Mandatory Classification

This structured approach helps users better understand a company's financial performance by clearly separating different types of activities.

Expense Classification

Companies can choose how to classify expenses in two ways:

By Nature: Grouping expenses based on what they are (e.g., all salaries together, all rent together).
By Function: Grouping expenses based on their purpose (e.g., cost of sales, administrative costs).

Important Condition

If a company chooses the "by function" method, it must group items of a similar nature together within each functional category.

Other Key Principles

The materiality principle determines what information must be presented or disclosed separately. Only information that could influence users' decisions needs to be highlighted.

Profit & Loss is the default location for all income/expenses, unless specific IFRS standards require presentation in Other Comprehensive Income (like IAS 16 for property, plant and equipment, and IAS 19 for employee benefits).

Presentation Flexibility

Different presentation approaches between companies can still be IFRS-compliant, allowing entities to tailor their financial statements to their specific circumstances while maintaining comparability.

Management Performance Measures (MPMs)

Management Performance Measures are non-IFRS financial metrics that management uses to assess performance.

Disclosure Requirements

These measures must be disclosed and clearly related to IFRS-defined subtotals to prevent misleading presentations.

Example: EBITDA = Earnings before Interest, Taxes, Depreciation, and Amortization

Earnings Per Share (EPS)

EPS calculation is only affected by items in profit or loss, ensuring consistency in this important performance metric.

IFRS 18 Requirements Summary

Area	Requirements	Flexibility Available	Constraints & Conditions
Income Statement Structure	Classification by operating, investing, and financing activities	Mandatory	Must reflect the nature of the entity's activities
Expense Classification	Presentation of expenses in an organized manner	Choice between nature or function classification	If using function, must aggregate similar items
Materiality	Determines presentation and disclosure requirements	Judgment-based application	Based on whether omission/misstatement could influence decisions
MPMs	Must be disclosed and reconciled to IFRS measures	Company-specific measures allowed	Must not be presented with more prominence than IFRS measures

Key Implementation Points

Structured presentation: Emphasizes categorization by business activities
Expense aggregation: Required when using functional classification
Management measures: Must be transparent and reconciled to IFRS totals
EPS focus: Based solely on profit or loss items

IFRS 18 - Presentation and Disclosure in Financial Statements

Flexibility with Structure: IFRS 18 allows different expense classification approaches, while still following the accounting rules

IFRS 18 requires that the Statement of Profit or Loss and Other Comprehensive Income (SOPL & OCI) be presented based on categories such as operating, investing, and financing.
Entities can choose between nature, function, or mixed expense classification
IFRS 18 stipulates that when presenting expenses, an entity is allowed to present them by nature or by function. However, if presented by function, the entity must apply aggregation and disaggregation conditions. For aggregation, the items must be of a similar nature
Materiality determines what information must be presented or disclosed
P&L is the default location for all income/expenses (unless specific IFRS requires OCI, like IAS 16 & IAS 19)
Different presentation approaches between companies can still be IFRS-compliant
Management Performance Measures (MPMs): Must be disclosed and related to IFRS-defined subtotals For Example (EBITDA = Earning before Tax, Interest, Depreciation, Amortization)
EPS calculation is only affected by items in profit or loss

Furthermore, IFRS 18 mandates the presentation of subtotals for:

Operating profit
Profit before financing
Profit before income tax
Results from continuing and discontinued operations

Professional Judgment: Preparers must use their professional judgment to apply IFRS 18 in a way that provides the most useful information, while still fully complying with the standard

Operating Category
Revenue	2,450,000
Cost of Sales	(1,620,000)
Gross Profit	830,000
Selling, General & Administrative Expenses	(385,000)
Research & Development	(152,000)
Depreciation & Amortization	(87,500)
Operating Profit	205,500
Investing Category
Rent Income - Property Investment	42,000
Gain on Investment Properties (IAS 40)	68,500
Dividend Income	15,200
Share of Profit from Associates	32,800
Profit Before Financing and Income Tax	364,000
Financing Category
Interest Expense on Loans	(48,500)
Interest on Pension Liabilities	(22,300)
Interest on Lease Liabilities (IFRS 16)	(15,700)
Other Financing Costs	(8,200)
Profit Before Income Tax	269,300
Less
Income Tax Expense (20%)	(53,860)
Net Income After Tax	215,440

Operating Category

From Revenue to Operating Profit

📊

This category includes all revenues and expenses from the entity's main business activities. IFRS 18 introduces defined subtotals and requires specific disclosure of management-defined performance measures.

📈 Operating Revenue

Sale of goods
IFRS 15
Rendering of services
Construction contracts
Royalties and license fees
Operating lease income
IFRS 16
Other operating revenues

📉 Operating Expenses

Cost of sales
Selling and marketing expenses
General and administrative expenses
Research costs
IAS 38
Development costs (amortization)
IAS 38
Employee benefits expense
IAS 19
Depreciation of property, plant and equipment
IAS 16
Amortization of intangible assets
IAS 38
Impairment of operating assets
IAS 36

💡 IFRS 18 Requirements

Operating Profit:IFRS 18 introduces this as a defined subtotal (revenue minus operating expenses)
Management-defined Performance Measures (MPMs):Must be disclosed and reconciled to IFRS-defined subtotals
Expense Analysis:Entities must analyze expenses either by nature or function with additional disclosures

Investing Category

From Operating Profit to Profit Before Financing

💼

This category includes income and expenses from returns on investments and investing activities that are unrelated to the entity's main business operations.

📈 Investing Income

Dividends from investments
IFRS 9
Interest income from financial assets
Rental income from investment properties
IAS 40
Share of profit of associates
IAS 28
Share of profit of joint ventures
IFRS 11
Gains on disposal of non-current assets

📉 Investing Expenses

Impairment losses on investments
IFRS 9
Losses on disposal of non-current assets
Fair value losses on investment properties
IAS 40
Impairment of investments in associates
IAS 28

💡 IFRS 18 Classification

Investing category includes returns on investments, not returns of investments
Items in this category are typically unrelated to the entity's main business activities
Profit before financing is a new defined subtotal under IFRS 18

Financing Category

From Profit Before Financing to Profit Before Income Tax

💰

This category includes income and expenses from financing activities, including costs of financing and returns paid to providers of capital.

📈 Financing Income

Interest income on cash and cash equivalents
Gains on repurchase of debt
Fair value gains on financial liabilities
IFRS 9
Foreign currency gains on financing items
IAS 21

📉 Financing Costs

Interest expense on financial liabilities
IAS 23
Losses on debt extinguishment
Dividends on preference shares classified as debt
Foreign currency losses on financing items
IAS 21
Fair value losses on financial liabilities
IFRS 9

💡 IFRS 18 Requirements

Financing category includes costs of liabilities and returns to equity holders (when classified as expenses)
Profit before tax remains a required subtotal under IFRS 18
Entities must provide clear disaggregation of financing income and expenses

Income Taxes

From Profit Before Income Tax to Profit from Continuing Operations

📝

This category includes all income tax expenses related to profit from continuing operations.

💰 Tax Expense Components

Current tax expense
IAS 12
Deferred tax expense
IAS 12
Adjustments for prior periods
Tax effects of changes in tax laws

📊 Tax Disclosures

Reconciliation of tax expense
Explanation of relationship between tax expense and accounting profit
Tax uncertainties and provisions
Unrecognized deferred tax assets

Discontinued Operations

As per IFRS 5

🔄

This category includes the results of components of an entity that have been disposed of or are classified as held for sale.

📈 Income & Gains

Revenue of discontinued operation
Gain on disposal of discontinued operation
Gain on measurement to fair value less costs to sell
Reversal of impairment of disposal group

📉 Expenses & Losses

Expenses of discontinued operation
Loss on disposal of discontinued operation
Impairment loss on disposal group
Restructuring costs related to disposal
Profit/Loss from discontinued operations after tax

IFRS 18 Disclosure Requirements

📋 Required Subtotals

Operating profit (revenue minus operating expenses)
Profit before financing and income tax
Profit before income tax
Profit from continuing operations
Profit or loss

📊 Additional Disclosures

Management-defined performance measures (MPMs)
Reconciliation of MPMs to IFRS-defined subtotals
Explanation of how MPMs provide useful information
Aggregation policies and judgments applied
Unusual income and expenses

💡 Important IFRS 18 Changes

Three-Category Structure:Operating, Investing, and Financing categories replace the single list of income and expenses
Defined Subtotals:Operating profit and profit before financing are now specified subtotals
MPM Disclosure:Entities must disclose and reconcile management performance measures
Enhanced Transparency:More detailed disclosure of unusual items and aggregation policies
No Extraordinary Items:IFRS continues to prohibit the presentation of extraordinary items

IFRS 18 - Presentation and Disclosure in Financial Statements

Income Statement Structure

Mandatory Classification

Expense Classification

Important Condition

Other Key Principles

Presentation Flexibility

Management Performance Measures (MPMs)

Disclosure Requirements

Earnings Per Share (EPS)

IFRS 18 Requirements Summary

Key Implementation Points

IFRS 18 - Presentation and Disclosure in Financial Statements

Classification

XYZ GROUP

Operating Category

📈 Operating Revenue

📉 Operating Expenses

💡 IFRS 18 Requirements

Investing Category

📈 Investing Income

📉 Investing Expenses

💡 IFRS 18 Classification

Financing Category

📈 Financing Income

📉 Financing Costs

💡 IFRS 18 Requirements

Income Taxes

💰 Tax Expense Components

📊 Tax Disclosures

Discontinued Operations

📈 Income & Gains

📉 Expenses & Losses

IFRS 18 Disclosure Requirements

📋 Required Subtotals

📊 Additional Disclosures

💡 Important IFRS 18 Changes