IFRS 18 Presentation and Disclosure in Financial Statements: Summary

 

FRS 18 was issued in 2024 and is mandatorily applicable for the period starting on or after 1 January 2027, with earlier application permitted.

However, please watch out because we need to apply IFRS 18 retrospectively, with the restatement of the comparative period.

It means that if you apply IFRS 18 from 2027, also the numbers for 2026 must be presented in line with the new rules.

IFRS 18 replaces the oldest standard IAS 1 Presentation of Financial Statements which will no longer applicable.

This summary splits the topics covered in IFRS 18 to the following subtopics:

1. Introduction: Objective, scope, definitions, separating and aggregation;
2. General requirements for financial statements;
3. Profit or loss statement – main changes here!;
4. Statement of other comprehensive income
5. Statement of financial position
6. Statement of changes in equity
7. Notes
8. Final word.

1. Introduction to IFRS 18 Presentation and Disclosure in Financial Statements

1.1 Objective of IFRS 18

IFRS 18 establishes the requirements for the presentation and disclosure of the information in the general purpose financial statements.

The objective is to make sure that entities provide relevant information faithfully representing insurance contracts. (see IFRS 17.1)

1.2 How to apply IFRS 18

We need to apply IFRS 18 retrospectively, with the restatement of the comparative period.

It means that if you apply IFRS 18 from 2027, also the numbers for 2026 must be presented in line with the new rules.

2. General requirements for financial statements

2.1 Objective of financial statements

The objective of financial statements is to provide financial information about a reporting entity’s:

• assets;
• liabilities;
• equity;
• income; and
• expenses,

so that the users of financial statements can assess the prospects for future net cash inflows the entity and management’s stewardship of the entity’s economic resources. (IFRS 18.9)
 

2.2 A complete set of financial statements

The components of the complete set of financial statements are (IFRS 18.10):

• a statement(s) of financial performance for the reporting period;
• a statement of financial position as at the end of the reporting period;
• a statement of changes in equity for the reporting period;
• a statement of cash flows for the reporting period; and
• notes for the reporting period;
• comparative information for the preceding period;
• a statement of financial position as at the beginning of the preceding period if required (i.e. when applying the new accounting policy retrospectively or makes material restatement retrospectively).

As for presenting the statement of financial performance, there are two options to present it as:

1. a single statement of profit or loss and other comprehensive income, in two sections; or
2. two separate statements.

2.3 Identification of financial statements

All the financial statements must be clearly identified, with the following information to disclose:

• the name of the reporting entity, and any change from the preceding reporting period;
• information about group or separate financial statements;
• date of the end of the reporting period or the period covered;
• presentation currency;
• level of rounding used.

IFRS 18 then sets the main principles, such as:

• Frequency of reporting;
• Consistency, disclosure and classification;
• Comparative information;
• Aggregation, disaggregation and offsetting

3. Profit or loss statement

IFRS 18 brings significant changes and specifications to the presentation of profit or loss, especially by introducing categories of income and expenses, and new subtotals to be presented.

3.1 Categories in the statement of profit or loss

All income and expenses in the statement of profit or loss shall be classified into one of the five categories:

1. Operating category – this is a default category and here, all items not included elsewhere are classified.
2. Investing category – for example, returns on investments, rentals from investment property, etc.
3. Financing category – all income and expenses related to liabilities, either from raising finance (e.g. interest expense on bonds, loans) or from other liabilities (e.g. unwinding the discount on long-term provisions).
4. Income taxes
5. Discontinued operations

These categories are NOT the same as categories in the statement of cash flows under IAS 7, although they may remind them.

Also, when an entity has specified main business activity, then it classifies certain items differently than other entities:

• If specified main business activity is investing in assets, then those expenses and income related to investing in assets belong to operating category (not investing);
• If specified main business activity is providing finance to customers, then those expenses and income related to providing finance to customers belong to operating category (not financing).

 

3.2 Totals and subtotals in statement of profit or loss

The mandatory subtotals are also a new requirement in IFRS 18 as compared to IAS 1.

Many entities presented those subtotals anyway, IFRS 18 just specifies how they should be determined.

There are three new mandatory subtotals:

• operating profit or loss – including all income and expenses in operating category;
• profit or loss before financing and income taxes – including operating profit or loss and all income and expenses in investing category;
• profit or loss, including all items in profit or loss.

3.3 Line items to be presented in profit or loss

As a minimum, an entity shall present the following amounts:

• Amounts required by IFRS 18:
  • Revenue, with presenting interest revenue and insurance revenue separately;
  • Operating expenses (by nature or by function);
  • Share of the profit or loss of associates and joint ventures by equity method;
  • Income tax expense or income;
  • Total for discontinued operations under IFRS 5.
• Amounts required by IFRS 9 Financial Instruments;
• Amounts required by IFRS 17 Insurance Contracts.

On top of these line items, an entity should present profit or loss for the period in allocation:

• attributable to non-controlling interests and
• attributable to owners of the parent.

4. Statement presenting comprehensive income

In the statement presenting comprehensive income, the following totals should be shown:

• profit or loss (carried from the statement of profit or loss);
• other comprehensive income, split into two categories:
  • items that will be reclassified to profit or loss after certain conditions are met; and
  • items that will not be reclassified.
• comprehensive income, being the total of:
• profit or loss and
• other comprehensive income.

Similarly as with profit or loss, an entity should present comprehensive income for the period in allocation:

• attributable to non-controlling interests and
• attributable to owners of the parent.

5. Statement of financial position

IFRS 18 does not change much about the presentation of the statement of financial position (balance sheet) in comparison with IAS 1.

IFRS 18 requires presentation of classified statement of financial position where current assets or liabilities are separated from non-current assets or liabilities.

With regard to a minimum content, the following line items shall be presented:

ASSETS	EQUITY AND LIABILITIES
Property, plant and equipment	Issued capital and reserves attributable to owners of the parent
Investment property
Intangible assets	Non-controlling interests
Financial assets	Financial Liabilities
Investments accounted for using equity method	Provisions
Biological assets
Inventories
Trade and other receivables	Trade and other payables
Cash and cash equivalents
Totals of assets in accordance with IFRS 5 Non-current assets Held for Sale and Discontinued Operations	Totals of liabilities in accordance with IFRS 5 Non-current assets Held for Sale and Discontinued Operations
Current tax assets	Current tax liabilities
Deferred tax assets	Deferred tax liabilities

Further sub classifications of the line items shall be disclosed either directly in the statement of financial position or in the notes, such as disaggregation of property, plant and equipment into classes, and similar.

Also, certain information related to the share capital, reserves and a few others shall be included in the statement of financial position, the statement of changes in equity or in the notes.

IFRS 18 does NOT prescribe the precise format of the statement of financial position. Instead, several formats are acceptable if they fulfill all requirements outlined above.

6. Statement of changes in equity

The requirements for statement of changes in equity in IFRS 18 are carried over from IAS 1, so they remain unchanged.

As a minimum, the statement of changes in equity must contain the following items:

• total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non-controlling interests
• the effect of retrospective application or restatement for each component of equity (if applicable)
• the reconciliation between the carrying amount at the beginning and the end of the period for each
  component of equity. Here, the following changes shall be disclosed separately:

• those resulting from profit or loss
• resulting from other comprehensive income
• resulting from transactions with owners (contributions, distributions and changes in ownership)

For the practical example showing the preparation of the statement of changes in equity step by step, please see this article.

Also, IFRS 18 prescribes to present amount of dividends recognized as distributions and the related amount per share on the face of the statement of changes in equity or in the notes.

7. Notes to the Financial Statements

The notes are meant to be the document accompanying numerical financial statements listed above. They should provide additional information not contained in the numbers, the basis of preparation of the financial statements and some additional information that might be relevant.

IFRS 18 sets that the notes shall contain at least:

• information about the basis for preparation of the financial statements;
• accounting policies used;
• information required by IFRS that is not presented in the primary financial statements – those are all subtotals and additional disclosures as required by other standards;
• other information that is not presented in the primary financial statements – for example, information about significant events or trends or contracts that might affect the business;

.

The notes shall be prepared in the systematic manner and be cross-referenced to the financial statements.

The new requirement in IFRS 18 is the presentation of management-defined performance measures.

Courtesy: Silvia

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How to Prepare Statement of Changes in Equity under IFRS 18

As the new IFRS 18 has been adopted, it might bring a bit of turmoil to some accountants who might need to change the structure of their accounts to adjust to the new requirements.

The good news is that the rules for the statement of changes in equity did not change, when compared to the older standard IAS 1 Presentation of Financial Statements.

In this post, you will learn:

• IFRS 18 rules for presenting the statement of changes in equity;
• Practical example solved step by step;

Statement of changes in equity in line with IFRS 18

As a minimum, the statement of changes in equity must contain the following items:

• Total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non-controlling interests.
  If you are preparing the individual, or separate statement of changes in equity for a single entity, then the total comprehensive income will be fully attributable to the owners of that entity.
  The split info the owners of the parent and non-controlling interests applies only in the consolidated financial statements for the group. Just to make it clear.
• The effect of retrospective application or restatement for each component of equity (if applicable).
  So, if you corrected some material error in the equity, or applied some accounting policy retrospectively in line with IAS 8, then this effect is reported separately.
  This is NOT seen as a change in equity; rather this is seen as the restatement, therefore it is secluded from the other parts.
• The reconciliation between the carrying amount at the beginning and the end of the period for each component of equity.
  Here, the following changes shall be disclosed separately:
  • those resulting from profit or loss
  • resulting from other comprehensive income
  • resulting from transactions with owners (contributions, distributions and changes in ownership).

  The best way to do that is in the table format, showing individual components of equity in the columns, and individual transactions in rows.

Also, IFRS 18 prescribes to present amount of dividends recognized as distributions and the related amount per share on the face of the statement of changes in equity or in the notes.

Let’s see the example.

Example: Statement of changes in equity

JBC Plc.’s balances on equity accounts were as follows:

During 20X3, the following transactions occurred:

• Change in accounting policy resulting in restatement of retained earnings on 1 January 20X3 by 660 CU upwards;
• Payment of dividends to JBC’s shareholders of 3 000 CU;
• Upward revaluation of PPE of 580 CU (revaluation model under IAS 16 is applied);
• Net profit for the year 20X3 of 4 800 CU.

During 20X4 (that is one year later), the following transactions occurred:

• Issue of 2 000 new 1 CU shares at 1.10 per share;
• Payment of dividends to JBC’s shareholders of 2 500 CU;
• Downward revaluation of PPE of 200 CU (revaluation model under IAS 16 is applied);
• Net profit for the year 20X3 of 5 300 CU.

Prepare the statement of changes in equity for the year ended 31 December 20X4.

Solution: Statement of changes in equity

It is always great to prepare the blank statement of changes in equity, and we can follow the format as suggested by implementation examples in IFRS 18.

Here’s just that:

Note – you can download the Excel file at the end of this article. The blank statement is in that Excel, too.

Then, we are going to fill in the gaps, starting with the opening balances and adding the respective transactions. Please watch the video below for the precise method.

A few remarks:

• Please note that the change in accounting policy is reported separately from the changes in equity, since this is a restatement. Also, we present the original balance prior restatement, as well as restated balance.
• Note that the issue of new shares is reported in split between two columns, since this transaction affected two items: share capital (in its nominal amount of 1 CU per share) and share premium (the excess over nominal).
• Other comprehensive income is presented in one line, split into individual movements. In this example, we have just one movement (revaluation surplus), but there could be some other movements, for example cash flow hedge reserve, etc.
• Profit (or loss) for the period is reported in the separate line.
• There is a subtotal for total comprehensive income, being the profit for the period plus other comprehensive income.
• The statement has 2 parts: one for comparatives (20X3) and one for the current reporting period (20X4).
• There is no non-controlling interest, because we are preparing the individual, separate statement of changes in equity.

The statement of changes in equity is as follows:

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IAS 1 Presentation of Financial Statements: Summary

 IAS 1 Presentation of Financial Statements represents a basis of the whole IFRS reporting, as it sets overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.

Financial Statements

Purpose of the financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.

The complete set of financial statements compliant with IFRS comprises 5 elements:

• a statement of financial position as at the end of the period
• a statement of comprehensive income for the period
• a statement of changes in equity for the period
• a statement of cash flows for the period
• notes containing a summary of significant accounting policies and other explanatory information.

If some accounting policy is applied retrospectively, or some retrospective restatements or reclassifications were made, then also a statement of financial position as at the beginning of the earliest comparative period shall be presented.

IAS 1 explains the general features of financial statements, such as fair presentation and compliance with IFRS, going concern, accrual basis of accounting, materiality and aggregation, offsetting, frequency of reporting, comparative information and consistency of presentation.

Structure and Content

IAS 1 requires identification of the financial statements and distinguishing them from other information in the same published document.

Every element of the financial statements shall contain the name of the reporting entity, the information whether the financial statements are of an individual or of a group, the date of the reporting entity and period covered, the presentation currency and the level of rounding (thousands, millions…).

IAS 1 lists the minimum content to be presented in the financial statements, except for the statement of cash flows (subject to IAS 7). So let’s look at it in a detail.

Statement of Financial Position

Before significant amendments of IAS 1, this statement was simply called “balance sheet”, however, it was renamed.

IAS 1 requires presentation of classified statement of financial position where current assets or liabilities are separated from non-current assets or liabilities. Basically, the asset or liability is current when it is expected to be recovered or settled within 12 months after the reporting period.

With regard to a minimum content, the following line items shall be presented:

ASSETS	EQUITY AND LIABILITIES
Property, plant and equipment	Issued capital and reserves attributable to owners of the parent
Investment property
Intangible assets	Non-controlling interests
Financial assets	Financial Liabilities
Investments accounted for using equity method	Provisions
Biological assets
Inventories
Trade and other receivables	Trade and other payables
Cash and cash equivalents
Totals of assets in accordance with IFRS 5 Non-current assets Held for Sale and Discontinued Operations	Totals of liabilities in accordance with IFRS 5 Non-current assets Held for Sale and Discontinued Operations
Current tax assets	Current tax liabilities
Deferred tax assets	Deferred tax liabilities

Further subclassifications of the line items shall be disclosed either directly in the statement of financial position or in the notes, such as disaggregation of property, plant and equipment into classes, and similar. Also, certain information related to the share capital, reserves and a few others shall be included in the statement of financial position, the statement of changes in equity or in the notes.

IAS 1 does NOT prescribe the precise format of the statement of financial position. Instead, several formats are acceptable if they fulfill all requirements outlined above.

Statement of Comprehensive Income

The statement of comprehensive income has 2 basic elements:

• Profit or loss for the period: here, all items of income and expenses must be recognized.
• Other comprehensive income: items recognized directly to equity or reserves, such as changes in revaluation surplus, gains or losses from subsequent measurement of available-for-sale financial assets, etc.

As a minimum, the statement of comprehensive income must contain the following items:

PROFIT OR LOSS
Revenue
Gains and losses arising from the derecognition of financial assets at amortized cost
Finance costs
Share of the profit or loss of associates and joint ventures accounted for using the equity method
Tax expense
Post-tax profit/gain or loss of operations or assets in accordance with IFRS 5 (Non-current assets Held for Sale and Discontinued Operations)
Profit or loss
OTHER COMPREHENSIVE INCOME
Each component of other comprehensive income classified by nature
Share of the other comprehensive income of associates and joint ventures accounted for using equity method
Total comprehensive income

As opposed to US GAAP, IAS 1 prohibits to report any transaction or item as extraordinary items.

Profit or loss for the period, as well as total comprehensive income shall be both presented in allocation:

• attributable to non-controlling interests and
• attributable to owners of the parent.

The entity might choose to classify expenses recognized in profit or loss for the period by their nature or by their function.

IAS 1 requires disclosure of certain items separately, either in the statement of comprehensive income, or in the notes. These items are as follows: write-downs of inventories and property, plant and equipment, their reversals, restructuring of activities and reversals of related provisions, disposals of property, plant and equipment, disposals of investments, discontinuing operations, litigation settlements and other reversals of provisions.

Statement of Changes in Equity

As a minimum, the statement of changes in equity must contain the following items:

• total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non-controlling interests
• the effect of retrospective application or restatement for each component of equity (if applicable)
• the reconciliation between the carrying amount at the beginning and the end of the period for each
  component of equity. Here, the following changes shall be disclosed separately:
  • those resulting from profit or loss
  • resulting from other comprehensive income
  • resulting from transactions with owners (contributions, distributions and changes in ownership)

Also, IAS 1 prescribes to present amount of dividends recognized as distributions and the related amount per share on the face of the statement of changes in equity or in the notes.

Notes to the Financial Statements

The notes are meant to be the document accompanying numerical financial statements listed above. They should provide additional information not contained in the numbers, the basis of preparation of the financial statements and some additional information that might be relevant.

IAS 1 sets that the notes shall contain a statement of compliance with IFRS, summary of significant accounting policies applied, supporting information for the numbers presented in the financial statements and other disclosures.

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