Key Points:

• IFRS 18, issued by the IASB, focuses on the presentation and disclosure in financial statements, particularly the statement of profit or loss.
• The standard introduces new concepts related to the structure of the statement of profit or loss, disclosures for management-defined performance measures, and principles on aggregation and disaggregation.
• IFRS 18 will replace IAS 1, with limited changes, and will not impact the recognition or measurement of items but might change the reporting of ‘operating profit or loss’.
• Effective for reporting periods beginning on or after January 1, 2027, with retrospective application required for comparative information.
• Entities should prepare for potential system and process changes to comply with the new requirements.

What’s the Issue?

Issued on April 9, 2024, IFRS 18 aims to improve comparability and transparency in performance reporting. The standard defines a structure for the statement of profit or loss and introduces specific disclosure requirements, enhancing comparability and transparency.

Key Changes:

1. Structure of the Statement of Profit or Loss:
2. Items classified into five categories: operating, investing, financing, income taxes, and discontinued operations.
3. Required subtotals include ‘Operating profit or loss’, ‘Profit or loss’, and ‘Profit or loss before financing and income taxes’.

• Disclosures Related to the Statement of Profit or Loss:
• Management-defined performance measures (MPMs) must be disclosed, including a reconciliation with specified subtotals in IFRS standards.
• Disclosure of expenses by nature for entities presenting the statement by function.

• Aggregation and Disaggregation:

Enhanced guidance on grouping items based on shared characteristics, affecting all primary financial statements and notes.

• Other Limited Changes:

IAS 7 amendments include specifying ‘operating profit or loss’ as the starting point for cash flows from operating activities and removing existing options for the presentation of interest and dividends.

AMA Observations:

1. Changes in aggregation and disaggregation require a review of chart of accounts and may necessitate significant system and process changes.
2. Identifying MPMs might be challenging, requiring extensive audit procedures.

Who is Impacted?

All entities reporting under IFRS standards, both public and private, must comply with the new requirements, including MPM disclosure.

Effective Date:

Effective from 1 January 2027, with retrospective application required. For more details, contact us at info@amaaudit.com or Adil Khan, our Partner and Head of the IFRS Desk at ak@amaaudit.com.

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