The International Accounting Standards Board (IASB) has completed its work to improve the usefulness of information presented and disclosed in financial statements.

IFRS 18, Presentation and Disclosure in Financial Statements, aims to give investors more transparent and comparable information about companies’ financial performance in order to allow for better investment decisions.

The new standard will affect all companies using IFRS Accounting Standards.

IFRS 18 introduces three new sets of requirements to improve companies’ reporting of financial performance in order to give investors a better basis for analysing and comparing companies:

  • Improved comparability in the statement of profit or loss (income statement)—currently there is no specified structure for the income statement. Companies choose their own subtotals to include. Often companies report an operating profit but the way operating profit is calculated varies from company to company, reducing comparability. IFRS 18 introduces three defined categories for income and expenses—operating, investing and financing—to improve the structure of the income statement, and requires all companies to provide new defined subtotals, including operating profit. The improved structure and new subtotals will give investors a consistent starting point for analysing companies’ performance and make it easier to compare companies.
  • Enhanced transparency of management-defined performance measures—many companies provide company-specific measures, often referred to as alternative performance measures. Investors find this information useful. However, most companies do not currently provide enough information to enable investors to understand how these measures are calculated and how they relate to the required measures in the income statement. IFRS 18 therefore requires companies to disclose explanations of those company-specific measures that are related to the income statement, referred to as management-defined performance measures. The new requirements will improve the discipline and transparency of management-defined performance measures, and make them subject to audit.
  • More useful grouping of information in the financial statements—investor analysis of companies’ performance is hampered if the information provided by companies is too summarised or too detailed. IFRS 18 sets out enhanced guidance on how to organise information and whether to provide it in the primary financial statements or in the notes. The changes are expected to provide more detailed and useful information. IFRS 18 also requires companies to provide more transparency about operating expenses, helping investors to find and understand the information they need.

Commenting on the new standard, IASB chair Andreas Barckow said: “IFRS 18 represents the most significant change to companies’ presentation of financial performance since IFRS Accounting Standards were introduced more than 20 years ago. It will give investors better information about companies’ financial performance and consistent anchor points for their analysis.”

IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027, but companies can apply it earlier.

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