IFRS 18 — Presentation and Disclosure in Financial Statements (Summary)
Effective date: 1 January 2027
IFRS 18 replaces IAS 1 and provides new structure and presentation rules for the primary financial statements:
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Statement of Financial Performance (New name for Statement of Profit or Loss + OCI)
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Statement of Financial Position
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Statement of Cash Flows
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Statement of Changes in Equity
Its main goals:
✔ Improve comparability
✔ Provide clearer categories of income & expenses
✔ Improve disclosure of unusual items
✔ Strengthen aggregation & disaggregation principles
1. Statement of Financial Performance (SOFPF) – New Structure
IFRS 18 introduces three required categories:
A. Operating category
Includes income and expenses from the entity’s main business activities.
Example
A manufacturing company reports:
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Revenue: $500,000
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Cost of sales: $(300,000)$
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Administrative expenses: $(50,000)$
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Selling expenses: $(40,000)$
All of these are Operating.
B. Investing category
Income and expenses from returns generated by assets that are not part of operating activities.
Examples
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Interest income from bond investments
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Dividend income from equity investments (not equity-accounted)
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Gain on sale of investment property (if not main business)
C. Financing category
Includes:
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Interest expenses
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Debt-related costs (borrowing costs)
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Effects of liabilities from financing (e.g., unwinding of discount)
Example
A company has:
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Interest expense on bank loan: $(20,000)$
→ Financing category
2. Management-defined Performance Measures (MPMs)
Entities must disclose:
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Profit metrics not defined by IFRS (e.g., “Adjusted EBITDA”, “Core profit”)
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Reconciliations to the closest IFRS subtotal
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Explanations of why management uses them
Example
Company discloses:
Adjusted profit = Profit before tax + Restructuring costs + Impairment expenses
A reconciliation table must be shown.
3. Unusual Items Disclosure
IFRS 18 requires:
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Identification of income/expenses that are unusual in nature
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Disclosure of:
✔ what they are
✔ why they are unusual
✔ effect on profit
Example
A factory is destroyed by a flood (rare event).
Insurance compensation is received.
→ Disclose separately as Unusual items.
4. Expenses by Nature vs. by Function
Entities must present only ONE method, but disclose additional breakdown in the notes.
Function method example
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Cost of sales
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Administrative expenses
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Selling expenses
Notes must disclose breakdown by nature:
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Depreciation: $30,000
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Employee salaries: $70,000
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Utilities: $10,000
5. Statement of Cash Flows – Classification Aligned
Classification aligns with Statement of Financial Performance categories.
Examples
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Interest paid → Financing
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Interest received → Investing
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Dividends received → Investing
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Dividends paid → Financing
(Unless for a financial institution—then operating.)
6. Statement of Financial Position — No Major Changes
But IFRS 18 strengthens aggregation & disaggregation principles.
Examples of disaggregation
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Separate “trade receivables” and “contract assets”
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Split PPE into classes in the notes
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Split provisions into categories (warranty, litigation, etc.)
7. Notes — Better Organization
IFRS 18 requires notes to be organized to increase readability:
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Follow the order of statements
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Group related disclosures
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Use totals and subtotals consistently
Example
Notes grouped as:
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Company information
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Basis of preparation
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Performance information
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Assets & liabilities
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Risk management
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Other disclosures
8. Required IFRS Subtotals
Mandatory subtotals now include:
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Operating profit
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Profit before financing & income taxes
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Profit before tax
Illustrative Mini Financial Statement (IFRS 18)
Statement of Financial Performance (Extract)
Operating category
Revenue ……………………………………… 500,000
Cost of sales ……………………………… (300,000)
Selling expenses ……………………………. (40,000)
Administrative expenses ………………… (50,000)
Operating profit …………………………….. 110,000
Investing category
Interest income …………………………………. 5,000
Financing category
Interest expense ………………………………. (20,000)
Profit before tax …………………………….. 95,000
Comprehensive Example – Unusual Items, Categories, MPM
A company sells machinery for $100,000 carrying value $30,000
→ Gain $70,000 (Not unusual, part of operating if business sells machinery)
But if the company rarely sells machinery:
→ classified as Operating but disclosed as Unusual with explanation.
It also presents “Adjusted Operating Profit”:
Operating profit = 110,000
Adjustments:
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Impairment of PPE: 20,000 (excluded as management metric)
→ Adjusted operating profit = 130,000
→ Reconciliation required in notes.