The International Accounting Standards Board (IASB) issued IFRS 18, Presentation and Disclosure in Financial Statements, on April 9, 2024. This new standard focuses on how financial statements are presented and what should be disclosed to make the information clearer, more comparable, and more useful. It will replace IAS 1 – Presentation of Financial Statements and will take effect starting January 1, 2027.

What Is the Purpose of IFRS 18?

IFRS 18 aims to help companies provide better and more consistent financial information. It ensures that financial statements clearly show a company’s:

• Assets and liabilities
• Equity
• Income and expenses

This standard applies to all companies that use IFRS, whether public or private.

Why Was IFRS 18 Introduced?

Investors and users of financial statements have long asked for:

• More consistent financial reports
• Clearer explanations of company performance
• Easier comparisons between companies

IFRS 18 addresses these concerns by introducing new requirements and key changes. These are the following:

1. New Subtotals in the Statement of Profit or Loss

Companies must now show two specific subtotals in their income statement:

– Operating profit

– Profit before financing and income taxes

These figures give users a clearer picture of a company’s main business performance and make it easier to compare with other companies.

2. New Categories for Income and Expenses

Companies must now group income and expenses into five categories:

– Operating – the company’s main business activities

– Investing – income from investments (e.g., rent from investment properties, dividends from shares)

– Financing – costs of borrowing or raising capital

– Income taxes – tax expenses

– Discontinued operations – results from parts of the business that are no longer operating

This structure makes financial statements easier to understand.

3. Disclosure of Management-Defined Performance Measures (MPMs)

If a company uses its own performance measures (called MPMs), it must:

– Clearly explain what each measure means

– Show how it was calculated

– Reconcile it to the nearest official IFRS subtotal

– Explain any changes to the measure over time

– Disclose tax and non-controlling interest effects

This helps users understand how management views company performance.

4. Better Grouping and Labeling of Information

IFRS 18 gives clearer rules for how to group and label information:

– Avoids too much or too little detail

– Prevents overuse of vague terms like “Other”

– Requires specific expense disclosures (e.g., employee benefits, depreciation)

It also provides guidance on whether to show information in the main statements or in the notes.

IFRS 18 does not change how items are measured or recognized, but it changes how they are presented and explained. As a result, companies may need to:

– Update financial reporting systems

– Review how they calculate and present performance measures

– Train accounting and finance staff

– Review how “operating profit” is defined in line with the new rules

Once approved in the Philippines, IFRS 18 will become PFRS 18, replacing PAS 1. Many of the older principles will remain, but new rules will improve how companies present financial information.

IFRS 18 is a major step forward in financial reporting. It will lead to:

– Clearer performance reporting

– Better comparisons across companies

– More useful information for decision-making

Companies should start preparing now to ensure a smooth transition by 2027.