IFRS Boosts Investment Decisions

Money Bizwiz Team
3 Min Read

Understanding IFRS 18: Presentation and Disclosure in Financial Statements

IFRS 18 is set to revolutionize the way companies present their financial statements, marking a significant shift in the statement of profit or loss – a change not seen since the introduction of IFRS Accounting Standards over two decades ago. The primary goal of IFRS 18 is to ensure consistency and transparency in the financial reporting of public companies, addressing investors’ concerns about the challenges of comparing financial performance across companies.

With the new Standard coming into effect on 1 January 2027, companies have the option to adopt it early. To prepare for this transition, companies should evaluate the internal systems and processes that need to be adjusted and plan how they will communicate these changes to investors. Early adopters may even begin sharing relevant information with the market as early as next year.

Enhancing Transparency and Comparability

IFRS 18 responds to the growing demand for greater comparability and transparency by focusing on financial performance information in the statement of profit or loss. This Standard will apply to all companies using IFRS worldwide starting in 2027.

New Requirements Introduced by IFRS 18

  • Introduction of two new subtotals in the statement of profit or loss.
  • Disclosure of management-defined performance measures (MPMs).
  • Enhanced guidance on grouping information in financial statements.

Key Changes in the Statement of Profit or Loss

One of the key improvements brought about by IFRS 18 is the categorization of income and expenses into operating, investing, and financing categories. This classification enables the presentation of two new subtotals – operating profit and profit before financing and income taxes, facilitating better analysis and comparability among companies.

Management-Defined Performance Measures (MPMs)

Companies often provide company-specific measures to communicate their performance. IFRS 18 requires the disclosure of MPMs related to the statement of profit or loss in the financial statements’ notes. Each MPM must be reconciled to the most directly comparable subtotal or total defined in IFRS Accounting Standards, enhancing transparency and understanding of these measures.

Grouping Information in Financial Statements

IFRS 18 introduces enhanced guidance on grouping information in financial statements, emphasizing the importance of meaningful labeling, structured summaries, and meaningful disclosure. These requirements aim to address investors’ concerns about the presentation of information in financial statements, ensuring that investors have the necessary details for their analysis.

For more information on how IFRS 18 will impact financial reporting and improve transparency, visit IFRS website.

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