Effect Analysis Ifrs18 April2024

April 2024
Effects Analysis
IFRS ® Accounting Standards
IFRS 18 Presentation and Disclosure in Financial Statements

This Effects Analysis accompanies, but is not part of, IFRS 18 Presentation and Disclosure in Financial Statements.
What is the purpose of this Effects Analysis?

This Effects Analysis describes the likely costs and benefits of IFRS 18. The International Accounting Standards Board (IASB) gains insights into the likely effects of
new or revised IFRS Accounting Standards through its exposure of proposals, consultation with stakeholders and research and analysis. This document describes the
IASB’s consideration of the effects of IFRS 18.
Background
IFRS 18 will be effective from 1 January 2027, replacing IAS 1 Presentation of Financial Statements. A company is permitted to apply IFRS 18 before that date.1
IFRS 18 completes the IASB’s Primary Financial Statements project to improve how companies communicate information in their financial statements, with a focus
on information about financial performance in the statement of profit or loss.
1 In this document, the term ‘company’ refers to a company that prepares financial statements using IFRS Accounting Standards and is used interchangeably with ‘preparer’.
Effects Analysis | IFRS 18 Presentation and Disclosure in Financial Statements | April 2024 | 2
Executive summary
What is IFRS 18?
Research background of IFRS 18
IFRS 18 is a new IFRS Accounting Standard aimed
at improving how companies communicate in their The Primary Financial Statements project was added to the IASB’s research agenda in July 2014 in response
financial statements. IFRS 18 responds to investor to strong stakeholder demand for the IASB to improve the reporting of financial performance. Feedback on
demands for better information about companies’ the IASB’s 2015 Agenda Consultation confirmed that the Primary Financial Statements project would be a
financial performance. high priority for the IASB.
Why develop IFRS 18? Feedback during the research phase Response in IFRS 18
IFRS Accounting Standards do not have detailed
requirements on: Statements of profit or loss vary in content and IFRS 18 requires new defined subtotals in the
• where to classify income and expenses in the structure between companies. statement of profit or loss.
statement of profit or loss (also referred to as the
‘income statement’); Investors find measures defined by IFRS 18 requires companies to disclose
management useful in analysing performance information about management-defined
• what subtotals to present above ‘profit or loss’ in the
and making forecasts about future performance performance measures (MPMs).
statement of profit or loss; or
but they are concerned about the lack
• how to group the information to be presented in of transparency of how these measures
the primary financial statements or disclosed in are calculated.
the notes.2
This lack of detailed requirements leads to diversity Some companies don’t provide enough detailed IFRS 18 provides companies with principles for
in practice. Companies define their own subtotals and information and important information is grouping information. It also defines the roles of
performance measures (often referred to as ‘alternative often obscured. the primary financial statements and the notes.
performance measures’, ‘APMs’ or ‘non‑GAAP
measures’) and group items in their own ways.
Investors said that this diversity makes it difficult to
analyse and compare companies’ performance.
2 ‘Primary financial statements’ comprise the statement(s) of financial performance, the statement of financial position (also referred to as the ‘balance sheet’), the statement of changes in equity and the statement of cash flows.
Who will have to apply IFRS 18 and What are the main changes for What are the likely benefits?
when does it have to be applied? companies? IFRS 18 will improve the quality of financial
All companies that prepare financial statements that IFRS 18 means companies will: reporting by:
comply with IFRS Accounting Standards are required • providing investors with additional useful
• in the statement of profit or loss—report two
to apply IFRS 18 retrospectively from 1 January 2027. information about financial performance;
new defined subtotals including operating profit,
They are permitted to apply it earlier.
based on a new set of requirements for classifying • improving investors’ ability to compare
income and expenses in categories; performance between companies and between
• in the notes—disclose information about some reporting periods for the same company; and
performance measures defined by management, • improving transparency to help investors
which IFRS 18 identify as ‘management-defined understand how management defines the
performance measures’ (MPMs); and company’s performance measures and how those
• in both the primary financial statements performance measures compare with measures
and the notes—group items applying defined by IFRS Accounting Standards.
enhanced requirements for aggregation and The IASB expects these improvements will enable
disaggregation of information. investors to make more informed decisions leading to
IFRS 18 also introduces limited changes to the better allocations of capital that will contribute to long-
statement of cash flows. term financial stability.
Table 1 shows the main changes to the financial
statements and the relationship between each main
change and its likely benefits.
Table 1—Main changes and likely benefits of those changes
Part of the Main changes introduced by IFRS 18 Likely benefits of those changes
financial
statements Providing Improving investors’ ability to Improving
investors with compare performance transparency
additional useful to help investors
information between between understand
about financial companies reporting periods how companies
performance for the same measure their
company own performance
Statement of • Classification of income and expenses in three new defined

profit or loss categories to provide a consistent structure for the statement of
profit or loss
—operating, investing and financing  
• Two new required subtotals to improve analysis
—operating profit and profit before financing and income taxes
Notes to • Disclosure of management-defined performance measures (MPMs)

the financial in a single note, including:
statements о a statement that the MPM reflects management’s view
о an explanation of why the MPM is reported and how it is calculated   
о a reconciliation to the most directly comparable subtotal listed in
IFRS 18 or total or subtotal required by IFRS Accounting Standards
о an explanation of any changes to MPMs
• Disclosure of specified expenses by nature included in each line item

in the operating category 
Both the • Enhanced requirements for grouping of information
primary (aggregation and disaggregation)
financial
statements
• Guidance on whether information should be in the primary financial   
statements or in the notes
and the notes
• Disclosures about items labelled ‘other’
What are the likely costs? Table 2—Requirements likely to be costly for companies and cost mitigations
Costs for companies Part of the Potentially costly requirements Cost mitigations for companies
financial statements
The IASB expects that all companies will incur some
costs in implementing IFRS 18. Statement of profit Companies will classify income and IFRS 18 provides relief from some
or loss expenses in the operating, investing and classification requirements if those
Most costs are likely to relate to changes in internal
financing categories in the statement of requirements would result in undue cost
processes and systems to make the company’s
profit or loss. or effort.
financial statements comply with IFRS 18. These costs
will vary depending on the company’s current systems IFRS 18 provides an accounting policy
and reporting practices. choice for some companies in classifying
specific types of income and expenses
Some companies will have lower implementation
in the statement of profit or loss.
costs than others. Companies are likely to have lower
costs if: Notes to the financial Companies will identify the income IFRS 18 allows simplified approaches to
• their current reporting practices are similar to the statements tax effect and effect on non-controlling calculating the income tax effect for each
requirements in IFRS 18; or interests for each reconciling item in the reconciling item.
reconciliation between an MPM and the
• most of the information required to apply IFRS 18 is
most directly comparable subtotal listed
available through their current systems.
in IFRS 18 or total or subtotal required by
Some requirements will result in ongoing costs. IFRS Accounting Standards.
The IASB has introduced simplifications and reliefs to
reduce these costs, summarised in Table 2. Companies that present operating IFRS 18 limits the disclosure to five
expenses by function in the statement of expenses: depreciation, amortisation,
profit or loss will disclose some specified employee benefits, impairment losses
expenses by nature included in each line and write-downs of inventories.
item in the operating category.
The amounts disclosed can include
amounts that have been recognised as
part of the carrying amount of an asset
in the period.
Costs for investors and other stakeholders Are there any other likely effects?
The IASB also expects that investors will incur some The IASB expects that IFRS 18 will improve the quality of digital reporting and improve consistency in digital
costs from the implementation of IFRS 18. These costs tagging of information.
will mostly arise from adjusting models and analyses
to reflect the new structure of the statement of profit Some companies have contracts, agreements and compensation policies based on measures in the statement
or loss. of profit or loss. Companies may need to assess whether to change these contracts, agreements and policies
because of changes to the statement of profit or loss required by IFRS 18.
The IASB expects the implementation of IFRS 18
to ultimately lower costs for investors. Investors are
expected to spend less time obtaining the information Overall assessment—do the benefits outweigh the costs?
they need for their analyses.
IFRS 18 is expected to improve the quality of financial reporting by defining categories and subtotals in the
Other stakeholders, in particular regulators and statement of profit or loss, requiring the disclosure of MPMs, and introducing enhanced requirements for
auditors, are also likely to incur some costs from the grouping of information in the primary financial statements and the notes.
implementation of IFRS 18. For regulators, these
costs will mostly arise from revising regulatory Companies will incur some costs to implement and apply the requirements in IFRS 18. The IASB has
templates and developing procedures to enforce included reliefs in IFRS 18 to reduce costs for companies while still providing investors with better
the new requirements. For auditors, these costs will information for better decisions.
mostly arise from developing audit procedures for new The IASB has concluded that the benefits to financial reporting from applying IFRS 18 outweigh the likely
disclosure requirements. costs of implementing and applying it.
Regulators and auditors will also incur some ongoing
costs to evaluate the judgements that companies make
in applying IFRS 18.
Contents
from page from page
Section 1 Introduction 9 Section 4 Costs 44
Section 2 Changes to accounting requirements 13 4.1—Costs for companies 45
2.1—Overview of changes introduced by IFRS 18 14 4.2—Cost mitigations for companies 52
2.2—Subtotals and categories 15 4.3—Costs for investors and other stakeholders 56
2.3—Management-defined performance measures 20 Section 5 Other effects 57
2.4—Grouping of information 24 5.1—Effects on digital reporting 58
2.5—Other changes to financial reporting 27 5.2—Effects on contracts, agreements and

compensation 60
Section 3 Benefits 29
Appendix Case study: Statement of profit or loss 61
3.1—Useful information about financial performance 30
3.2—Comparability of financial information 34
3.3—Transparency of alternative performance

measures 40
1—Introduction
1—Introduction
What is an effects analysis? Consultation process
Consultation process for IFRS 18
Before the IASB issues an IFRS Accounting Standard, Consultations with stakeholders are central to the
• Agenda Consultation (2015)
it assesses the likely costs and benefits (collectively IASB’s analysis of the effects of new or revised
referred to as ‘effects’) of the new requirements, IFRS Accounting Standards. These consultations • E
xposure Draft General Presentation and
including the effects for companies that prepare take place both before and after the publication of an Disclosures (2019)—216 comment letters
financial statements and for users of financial exposure draft. received and analysed
statements (referred to as ‘investors’ in this document).
The IASB published the Exposure Draft General • 5
7 meetings with the advisory bodies and
This assessment is based on research, analysis,
Presentation and Disclosures in December 2019. consultative groups throughout the project
consultations with stakeholders, and fieldwork and
Public consultations on the Exposure Draft included
feedback on the Exposure Draft. • Fieldwork with 50 participants
hundreds of meetings, roundtables and other
The IASB also considers the fact that preparers can outreach activities. • Outreach meetings, including:
often develop information that investors need more о 117 outreach meetings before the
The consultations involved extensive discussions with
accurately and at lower cost than investors can do Exposure Draft was published;
preparers, investors, regulators, standard-setters, large
themselves. One of the main objectives of developing
accounting networks and academics. The IASB held о 139 outreach events during the consultation
a single set of high-quality global accounting
further outreach meetings in 2022 on some changes period in 2020; and
standards is to improve the allocation of capital.
that it made to the proposals in the Exposure Draft
The IASB therefore considers the benefits of better о additional outreach meetings during
during its redeliberations.
economic decision-making that result from improved redeliberations, including 37 targeted
financial reporting. The IASB also undertook fieldwork. Fifty companies outreach meetings in 2022.
recast their statements of profit or loss and cash flows
When it issues a major Standard, the IASB publishes
according to the proposed requirements and discussed
a separate report that summarises the likely
the expected changes to their financial statements and
effects and how the IASB made its assessment
expected costs of implementation.
(this Effects Analysis).
Methodology used for this In evaluating the likely effects of IFRS 18, the IASB has
considered how IFRS 18 will affect:
Effects Analysis
• reporting of activities in the financial statements of
This report is mainly a qualitative rather than companies applying IFRS Accounting Standards;
quantitative evaluation of the expected effects of
IFRS 18. The reason is that quantifying costs and, • comparability of financial information, both between
particularly, benefits is a subjective and difficult reporting periods for the same company and
process. There are no well-established and reliable between companies for the same reporting period;
techniques for the quantification of either costs or • investors’ ability to assess the amount, timing and
benefits in this type of analysis. uncertainty of a company’s future cash flows,
as well as the company’s financial position and
The analysis covers the likely effects of the new
performance;
accounting requirements rather than the actual
effects, because the actual effects cannot be known • economic decision-making—specifically, whether
until after companies apply the new requirements. better decision-making will be possible because of
The actual effects will be evaluated during the improved financial reporting;
IASB’s Post‑implementation Review. • compliance costs for companies, both for initial
application and on an ongoing basis; and
• costs of analysis for investors.
Analysis of current practice
Figure 1—Industries covered by the analysis
In addition to the information on current practice
obtained from academic literature and other external
20% Consumer-related
research, the IASB obtained information on current
practice from its own analysis using data collated from 20% Industrials
2021–2022 financial statements prepared applying
IFRS Accounting Standards, together with related 15% Energy and utilities
reports and public communications. 15% IT and communications
The financial statements came from a cross-industry
15% Other non-financial
sample of 100 listed companies with large market
capitalisations in 26 jurisdictions. Data and analysis 15% Financials
from this study are reported and reproduced in tables
and figures throughout this Effects Analysis.
Figure 1 and Figure 2 show the industries and regions
covered in the sample. Figure 2—Regions covered by the analysis
This selection of companies and industries may not be
enough to reliably predict the effect of IFRS 18 globally.
However, the IASB expects the analysis will help
stakeholders assess what changes they can expect 57% Europe
from IFRS 18. 30% Asia-Oceania
8% Americas
5% Africa and Middle East
Section 2 of this document describes the changes to the financial statements introduced by IFRS 18.
Sections 3 to 5 describe the effects that are likely to result from these changes.
2—Changes to accounting requirements
2.1—Overview of changes introduced by IFRS 18
IFRS 18 introduces new requirements for information Main changes in IFRS 18 This project did not include:
presented in the primary financial statements and
The main changes introduced by IFRS 18 relate to • changes to the statement of cash flows
disclosed in the notes. The new requirements are
three areas: (other than the limited changes explained in
focused on the statement of profit or loss.
Section 2.5)—the IASB added a research project on
IFRS 18 is expected to affect all companies that apply Presentation of new defined subtotals in the statement of cash flows and related matters to
IFRS Accounting Standards. The effects of IFRS 18 1 the statement of profit or loss—operating its work plan for 2022–2026.
will vary depending on the presentation and disclosure profit and profit before financing and income • other comprehensive income—the IASB decided
practices used by a company and the type and range taxes—and consistent classification of not to reconsider its work on when to include
of its business activities. income and expenses in categories to income or expenses in other comprehensive income
The effect is likely to be more significant for a provide useful information and improve and when to reclassify such items to the statement
company if: comparability (see Section 2.2). of profit or loss. The IASB considered other
comprehensive income as part of the Conceptual
• its current classification of income and expenses
Framework for Financial Reporting.
differs from the new classification requirements for Disclosure of information about
income and expenses; or 2 management-defined performance • segment reporting and discontinued
measures (MPMs) to promote operations—the IASB decided not to consider
• it is no longer permitted to present a subtotal in the
transparency and discipline these areas because doing so would widen the
statement of profit or loss but continues to use such
(see Section 2.3). scope of the project.
a subtotal in its communications with investors.
After considering the needs of companies and
investors, the IASB set the effective date for IFRS 18 Enhanced requirements for grouping
from 1 January 2027. 3 (aggregation and disaggregation) of
This section focuses on the changes to presentation information to help a company provide
and disclosure in financial statements introduced by useful information (see Section 2.4).
IFRS 18 and how the changes relate to the objectives
of the project. IFRS 18 is accompanied by limited changes to the
statement of cash flows to improve comparability
(see Section 2.5).
2.2—Subtotals and categories
Presentation of two new defined Five categories for classifying income Additional requirements for classification of
subtotals—operating profit and profit and expenses in the statement of income and expenses by companies with
before financing and income taxes profit or loss—operating, investing, specified main business activities
financing, income taxes and
Main points discontinued operations
An illustration of a statement of profit or loss for a What are the required totals and Can additional subtotals be presented?
company applying IFRS 18 is shown in Figure 3. The
appendix contains a case study that illustrates some of
subtotals? In addition to presenting required totals and
the changes that might arise on implementing IFRS 18. subtotals, a company is required to present additional
A company is required to present: subtotals in the statement of profit or loss when such
All companies will follow the same classification presentations are necessary to provide a useful
requirements, with some modifications for companies • operating profit (or loss); structured summary of the company’s income and
that invest in assets as a main business activity (such • profit (or loss) before financing and income expenses (see Section 2.4).
as investment entities, investment property companies taxes;3 and
and insurers) and companies that provide financing to
• profit (or loss).
customers as a main business activity (such as banks).
See page 18 for the requirements for companies with
such specified main business activities.
3 This subtotal is not presented by some companies that provide financing to customers as a main business activity.
Figure 3—Statement of profit or loss (extract from the Illustrative Examples on IFRS 18)4 What is classified in the operating
Statement of profit or loss 20X2 20X1 Categories5 category?
Revenue 367,000 353,100 The operating category includes all income and
Cost of sales (241,600) (224,100) expenses in the statement of profit or loss that are
Gross profit 125,400 129,000 not classified in the investing, financing, income
taxes or discontinued operations categories.
Other operating income 12,200 4,100
Selling expenses (28,900) (27,400) Operating The operating category is the default category that:
Research and development expenses (25,100) (25,900) • comprises all income and expenses arising from
General and administrative expenses (20,900) (22,400) a company’s operations, regardless of whether
they are volatile or unusual in some way.
Goodwill impairment loss (4,500) –
Operating profit is not a measure of ‘persistent’ or
Other operating expenses (1,200) (5,600) ‘recurring’ operating performance. It provides a
Operating profit 57,000 51,800 complete picture of the results from a company’s
operations for the period.
Share of profit and gains on disposal of associates
5,300 7,300 Investing • includes, but is not limited to, income
and joint ventures
and expenses from a company’s main
Profit before financing and income taxes 62,300 59,100
business activities. Income and expenses
Interest expenses on borrowings and lease liabilities (13,000) (13,200) from other business activities, such as income
Financing
Interest expenses on pension liabilities and provisions (6,500) (6,000) and expenses from additional activities, are also
classified in the operating category if those income
Profit before income taxes 42,800 39,900
and expenses do not meet the requirements to be
Income tax expense (10,700) (9,975) Income taxes classified in any of the other categories.
Profit from continuing operations 32,100 29,925
Loss from discontinued operations – (5,500) Discontinued operations
Profit 32,100 24,425
4 Subtotals highlighted in blue in this statement of profit or loss are required subtotals and those highlighted in grey are additional subtotals. Line items illustrate what is included in each category and do not denote line items that
any particular company would present. Presentation of profit or loss attributable to owners of the parent and non-controlling interests and references to items that would be disclosed in the notes are not shown for simplicity.
5 The ‘Categories’ column is presented to illustrate the structure of the statement of profit or loss. Category labels are not required to be presented in the statement of profit or loss.
What is classified in the investing What is classified in the financing What is classified in the other
category? category? categories?
Income taxes category
The investing category comprises income and The financing category comprises:
expenses from:6 The income taxes category comprises:
• income and expenses from liabilities arising
• investments in associates, joint ventures and from transactions that involve only the raising of • tax expense or tax income included in the statement
unconsolidated subsidiaries; finance;7 and of profit or loss applying IAS 12 Income Taxes; and
• cash and cash equivalents; and • interest income and expenses and the effects of • any related foreign exchange differences.
• other assets that generate a return individually changes in interest rates from liabilities arising
Discontinued operations category
and largely independently of the company’s from transactions that do not involve only the
raising of finance. The discontinued operations category comprises
other resources.
income and expenses from discontinued operations
required by IFRS 5 Non-current Assets Held for Sale
Examples of the income and expenses that will be Liabilities that arise from transactions that involve only and Discontinued Operations.
classified in the investing category are: the raising of finance include debt instruments settled
in cash such as debentures, loans, notes, bonds and
• the share of profit of associates and joint ventures
mortgages.
accounted for using the equity method;
• interest revenue from debt investments; Liabilities arising from transactions that do not involve
only the raising of finance include:
• dividends from equity investments; and
• payables for goods or services;
• rental income and fair value gains or losses from
investment properties. • lease liabilities; and
• defined benefit pension liabilities.
6 ‘Income and expenses’ classified in the investing category comprises income generated by the assets, income and expenses that arise from the initial and subsequent measurement of the assets, including on derecognition of
the assets, and incremental expenses directly attributable to the acquisition and disposal of the assets, for example transaction costs and costs to sell the assets.
7 ‘Income and expenses’ classified in the financing category comprises income and expenses that arise from the initial and subsequent measurement of the liabilities, including on derecognition of the liabilities, and incremental
expenses directly attributable to the issue and extinguishment of the liabilities, for example transaction costs.
Companies with specified main Companies that invest in assets as a main Companies that provide financing to
business activity customers as a main business activity
business activities
Some companies invest in assets as a main business Some companies provide financing to customers
Operating profit is an important measure of operating
activity, for example investment entities, investment as a main business activity, for example banks or
performance. IFRS 18 requires a company with
property companies and insurers. Such companies automotive finance companies.
specified main business activities to classify in the
will classify in the operating category the income and
operating category some income and expenses that Such companies will:
expenses that arise from those assets that would
would otherwise be classified in the investing category • classify in the operating category income and
otherwise be classified in the investing category.
or the financing category. expenses from liabilities that arise from transactions
There are two exceptions to this principle:
IFRS 18 requires a company to assess whether it: that involve only the raising of finance related to the
• income and expenses from investments in provision of financing to customers; and
• invests in assets as a main business activity; or
associates, joint ventures and unconsolidated • make an accounting policy choice to classify
• provides financing to customers as a main subsidiaries accounted for using the equity method in the operating category or financing category
business activity. are always classified in the investing category. income and expenses from liabilities that arise
Some companies, for example investment and retail • cash and cash equivalents are excluded from the from transactions that involve only the raising of
banks, may both invest in assets and provide financing assessment. The classification of income and finance not related to the provision of financing to
to customers as main business activities. expenses from cash and cash equivalents depends customers.
on whether a company has specified main business Such companies are still required to classify interest
activities and, if so, the type of specified main income and expenses (and the effect of changes
business activity.8 in interest rates) from liabilities that arise from
transactions that do not involve only the raising of
finance in the financing category.
8 If a company invests in financial assets as a main business activity it will classify all income and expenses from cash and cash equivalents in the operating category. If a company does not invest in financial assets as a main
business activity but provides financing to customers as a main business activity, it will apply an accounting policy choice to classify all income and expenses from cash or cash equivalents or the portion related to providing
financing to customers in the operating category.
Classification of specific income and
Changes to the financial statements—subtotals and categories in the statement of profit or loss
expenses
Presentation of operating profit Presentation of profit before financing and
Foreign exchange differences
income taxes
All companies will present operating profit in the
Foreign exchange differences are classified in the
statement of profit or loss, regardless of whether Many companies will present the new subtotal of
same category as the income and expenses from the
they currently present such a subtotal. profit before financing and income taxes.
items that gave rise to those differences. For example,
foreign exchange differences on a foreign-currency Companies that currently present a subtotal Some companies currently present a subtotal
denominated receivable for a sale of goods are labelled operating profit are likely to change the labelled ‘earnings before interest and tax (EBIT)’.
classified in the operating category (the same category items included in operating profit to align with However, EBIT is not defined in IAS 1. The IASB’s
as the sale of goods). IFRS 18 provides undue cost or the definition in IFRS 18, which is designed definition of ‘profit before financing and income
effort relief for the classification of foreign exchange to be comparable between companies. IAS 1 taxes’ is likely to differ from the definition companies
differences, as discussed in Section 4.2. does not require or define an operating profit use for EBIT.
subtotal. Therefore, current practice varies
Presentation of a company’s own subtotals in
Fair value gains and losses on derivatives with each company having its own definition of
the statement of profit or loss
The classification of fair value gains and losses on operating profit.
Some companies currently present their own
derivatives depends on whether the derivatives are For example, some companies include in operating
subtotals in the statement of profit or loss. The
used to manage exposure to identified risks and profit income and expenses from associates and
requirements for the classification of income and
whether they are designated as hedging instruments. joint ventures accounted for using the equity
expenses into categories may prevent companies
IFRS 18 provides undue cost or effort relief for the method, but others do not (see Section 3.2).
from presenting some of these subtotals because
classification of gains or losses on derivatives used to they will not fit into the new structure of the
manage identified risks but not designated as hedging statement of profit or loss.
instruments, as discussed in Section 4.2.
Income and expenses from hybrid contracts

The classification of income and expenses from hybrid
contracts comprising host liabilities and embedded
derivatives depends on whether the embedded
derivative is separated from the host liability and the
nature of the hybrid contract.
2.3—Management-defined performance measures
Identifying management-defined performance measures Disclosure of information about management-defined

performance measures in the notes to the financial statements
Main points
What are management-defined Figure 4—MPMs and other performance measures

performance measures (MPMs)?
Performance measures
An MPM is a subtotal of income and expenses that:
• is used in public communications outside financial Subtotals of income and expenses
statements; Other performance measures
• is used to communicate to investors management’s MPMs IFRS-Specified
view of an aspect of the financial performance of the
company as a whole; and • Adjusted profit • Operating profit • Free cash flow
• is not listed in IFRS 18 or specifically required by • Adjusted operating profit • Operating profit before • Return on equity
IFRS Accounting Standards. • Adjusted earnings before depreciation, amortisation • Net debt
interest, tax, depreciation and and impairments within the
Companies often use their own measures to track • Number of customers
amortisation scope of IAS 36 Impairment
performance, including subtotals of income and • Customer satisfaction
of Assets
expenses that they communicate in connection with
financial performance.
However, not all of these measures are MPMs.
Figure 4 provides examples of MPMs and other
performance measures. Figure 5 explains how to
identify an MPM.
Criteria for MPMs Figure 5—Identifying an MPM
Subtotals of income and expenses No

Is the measure a subtotal of income and expenses?
MPMs are subtotals of income and expenses.
Yes
Other measures, such as free cash flow, are not MPMs.
Is the measure used in public communications No
Used in public communications outside outside financial statements?
financial statements Yes Not an MPM—
Public communications include management Yes disclosure
Is the measure included in the list of subtotals in IFRS 18 that are not MPMs or
commentary, press releases and investor requirements for
specifically required to be presented or disclosed by IFRS Accounting Standards?
presentations. For the purpose of identifying MPMs are not
No applicable
MPMs, public communications do not include
oral communications, written transcripts of Does the measure communicate management’s view?*
oral communications or social media posts
(see Section 4.2). No
Is there reasonable and supportable information Yes

Subtotals not listed in IFRS 18 or specifically Yes
to rebut the presumption?*
required by IFRS Accounting Standards
No
Examples of subtotals that are not MPMs are gross
profit and profit before income taxes. MPM—disclosure requirements for MPMs are applied to that measure
Communicate management’s view of

* It is presumed that a subtotal of income and expenses used in public communications communicates management's view; a company is not
financial performance required to consider whether to rebut the presumption.
IFRS 18 presumes that a subtotal of income and

expenses used in public communications outside
financial statements represents management’s view of
financial performance. A company is permitted to rebut
this presumption if it has reasonable and supportable
information demonstrating that such a subtotal does
not communicate management’s view. This rebuttable
presumption is discussed in Section 4.2.
What disclosures does IFRS 18 Figure 6—Illustrative example of an MPM reconciliation (extract from the Illustrative Examples on IFRS 18)9
require for MPMs? Adjusting items
A company will disclose information about its MPMs Gains on
in a single note to the financial statements. The note disposal of
will include a statement that the MPMs provide property,
management’s view of an aspect of the financial Impairment Restructuring plant and
performance of the company as a whole and are not IFRS losses expenses equipment MPM
necessarily comparable with measures sharing similar
labels or descriptions provided by other companies. Other operating income – – (1,800)
The note will also include for each MPM: Research and development expenses 1,600 – –
• a description of the aspect of financial General and administrative expenses – 3,800 –

performance that it communicates, including
why management believes the MPM provides Goodwill impairment loss 4,500 – –
useful information about the company’s Operating profit /
financial performance; Adjusted operating profit 57,000 6,100 3,800 (1,800) 65,100
• a description of how the MPM is calculated;
Income tax expense – (589) 297
• a reconciliation between the MPM and the most
directly comparable subtotal listed in IFRS 18 Profit from continuing operations /
or total or subtotal required by IFRS Accounting Adjusted profit from continuing
Standards, including the income tax effect and operations 32,100 6,100 3,211 (1,503) 39,908
the effect on non-controlling interests for each item Profit attributable to
disclosed in the reconciliation (see Figure 6); and non-controlling interests 305 161 –
• a description of how the company determined
the income tax effect.
9 Comparative information and narrative disclosures are not shown for simplicity.
If a company changes the calculation of an MPM,
introduces a new MPM, or ceases to use a previously Changes to the financial statements—alternative performance measures (APMs)
disclosed MPM, it will disclose:
Use of APMs
• an explanation of the change, addition or cessation
and its effects; The introduction of newly defined subtotals in IFRS 18 could reduce the use of some performance measures
companies define themselves (referred to hereafter as APMs). For example, some companies may decide to
• the reasons for the change, addition or cessation;
explain operating performance in public communications using operating profit as defined in IFRS 18.
and
• restated comparative information to reflect Disclosure
the change, addition or cessation unless it is Companies that currently use APMs, without providing detailed information about them inside or outside the
impracticable to do so. financial statements, will need to provide the MPM disclosures in the financial statements for those APMs
that meet the definition of MPMs in IFRS 18.
What about EBITDA? Companies that already disclose information about APMs in the financial statements may need to change
the contents of the disclosure to comply with IFRS 18 if the APMs meet the definition of MPMs. For example,
a company may need to change the reconciliation that it currently provides as a result of applying the
IFRS 18 does not define EBITDA (earnings before guidance in IFRS 18 on which totals or subtotals can be used for MPM reconciliations and the requirement
interest, tax, depreciation and amortisation). to disclose for each item in the reconciliation the amounts related to each line item in the statement of profit
Instead, IFRS 18 specifies that ‘operating profit or loss.
or loss before depreciation, amortisation and
impairments within the scope of IAS 36’ (OPDAI) For many companies, disclosure of the income tax effect and the effect on non-controlling interests of each
is not an MPM. reconciling item will be new. Companies that currently provide aggregated information about those effects for
all reconciling items will need to disaggregate this information.
The IASB considered introducing a defined
subtotal for EBITDA. However, the IASB’s
research showed that there is no consensus
among investors about what EBITDA represents.
If a company provides an EBITDA subtotal in its
public communications that is not calculated in
the same way as OPDAI, that subtotal would be
an MPM, so the company will need to provide
disclosures about it.
2.4—Grouping of information
Primary financial statements provide Grouping and labelling of items follows Some companies will be required to
useful structured summaries—notes consistent principles disclose specified expenses by nature
provide other material information in the notes
Main points
Roles of the primary financial Table 3—Roles of the primary financial statements and the notes
statements and the notes
Primary financial statements Notes
The objective of financial statements is to provide
financial information about the company’s recognised
Provide structured summaries of a company’s Provide material information necessary:
assets, liabilities, equity, income and expenses that is
recognised assets, liabilities, equity, income,
useful to investors in assessing the prospects for future • to enable investors to understand the items in
expenses and cash flows, that are useful for:
net cash inflows to the company and in assessing the primary financial statements; and
management’s stewardship of the company’s • obtaining an understandable overview of the • to supplement the primary financial
economic resources. company’s recognised assets, liabilities, equity, statements with additional information to
income, expenses and cash flows; achieve the objective of the financial statements.
To achieve the objective of financial statements, the
primary financial statements and the notes have • making comparisons between companies,
distinct and complementary roles in providing financial and between reporting periods for the same
information, shown in Table 3. company; and
• identifying items or areas about which users of
financial statements may wish to seek additional
information in the notes.
Principles for grouping (aggregation
Changes to the financial statements—roles of the primary financial statements and the notes
and disaggregation) of information and principles for grouping of information
IFRS 18 requires companies to aggregate or
disaggregate information about individual transactions Roles of the primary financial statements and Principles for grouping of information
and other events into the information presented in the notes
The new requirements for aggregation and
the primary financial statements and disclosed in To ensure that the primary financial statements and disaggregation will result in some companies:
the notes. the notes fulfil their roles, a company will need to
• changing the way they aggregate and
The requirements are based on principles for grouping consider whether to:
disaggregate items in order to fulfil the roles of
(aggregation and disaggregation) of information. • present the line items listed in IFRS 18 for the the primary financial statements and the notes;
IFRS 18 requires companies to ensure that: statement of profit or loss and the statement • changing the way they describe items presented
• items are aggregated based on shared of financial position if doing so is necessary or disclosed so that the description faithfully
characteristics and disaggregated based on for the statements to provide useful structured represents the characteristics of each item;
characteristics that are not shared; summaries of the company’s income, expenses,
• changing the labels that they use for aggregated
assets, liabilities and equity;
• items are aggregated or disaggregated such that the amounts, such as ‘other’, to more informative
primary financial statements and the notes fulfil their • present additional subtotals and line items in labels; and
roles; and the primary financial statements if necessary
• explaining how amounts disclosed in the notes
to provide useful structured summaries of the
• the aggregation and disaggregation of items does relate to the amounts in a primary financial
company’s income, expenses, assets, liabilities
not obscure material information. statement, including the line item in which the
and equity; and
Companies will be specifically required to disaggregate amount is included.
• disclose items that are not presented in the
information whenever the resulting information
primary financial statements in the notes if the
is material. If a company does not present such
information is material.
information in the primary financial statements, it will
disclose the information in the notes.
To help companies apply the principles, IFRS 18
provides application guidance on grouping items
and labelling aggregated items, including which
characteristics to consider when assessing whether
items have similar or dissimilar characteristics.
Presentation of operating expenses Disclosure of expenses by nature
Changes to the financial statements—
IFRS 18 requires companies to classify and present A company that presents one or more line items for presentation and disclosure of
operating expenses in a way that provides the most operating expenses classified by function is required operating expenses
useful structured summary of its expenses using the to disclose the amounts for five specified expenses
characteristics of: by nature related to each line item in the operating Presentation of operating expenses
category of the statement of profit or loss.10
• the nature of the expense (for example, raw material The requirement in IFRS 18 to assess whether to
expenses and employee benefit expenses); or The expenses required to be disclosed are: present operating expenses by nature or function
• the function of the expenses within the company (for will result in some companies being required to
• depreciation;
example, cost of sales). change the line items presented in the statement
• amortisation; of profit or loss.
A company will classify some operating expenses by
• employee benefits;
function and others by nature if doing so would provide IAS 1 requires companies to present an analysis
the most useful structured summary of its expenses. • impairment losses and reversals of impairment of expenses based on either their nature or their
losses; and function within the company—whichever provides
In deciding how to present operating expenses, a
• write-downs and reversals of write-downs information that is reliable and more relevant.
company will consider factors such as what line items
of inventories. However, IAS 1 contains limited guidance on how
provide the most useful information about the main
to apply this requirement.
components or drivers of the company’s profitability
and industry practice. Disclosure of expenses by nature
Companies that currently do not disclose
information about expenses by nature included
in each line item in the operating category will be
required to do so.
As a result, more companies will provide detailed
information about their operating expenses than
they currently provide.
10 The amounts to be disclosed need not be the amounts recognised as an expense in the reporting period. The disclosed amounts can include amounts that have been recognised as part of the carrying amount of an asset in
the period (see Section 4.2).
2.5—Other changes to financial reporting
Statement of cash flows Table 4—Classification of interest and dividends paid and received in the statement of cash flows
The IASB amended IAS 7 Statement of Cash Flows: Cash flow item Classification before Classification after amendments to IAS 7
• to require all companies to use the operating profit amendments to IAS 7
subtotal as the starting point for the indirect method Companies with Companies with
of reporting cash flows from operating activities; and no specified main specified main
business activities business activities
• to remove the presentation alternatives for cash
flows related to interest and dividends paid and Interest received Operating or investing Investing
received as shown in Table 4. A single category for
Interest paid Operating or financing Financing each item—operating,
investing or financing
Do the categories have the same Dividends received Operating or investing Investing
meaning in the statement of profit or
Dividends paid Operating or financing Financing Financing
loss and the statement of cash flows?
No, they have different meanings. In developing Changes to the financial statements—statement of cash flows
IFRS 18, the IASB prioritised the objectives of
each primary financial statement and did not Starting point for the indirect method Classification of interest and dividend
seek alignment between the operating, investing cash flows
All companies presenting a statement of cash flows
and financing categories in the statement of using the indirect method will use the same starting Some companies that classify interest received,
profit or loss and the statement of cash flows. point—operating profit—to report cash flows from interest paid and dividends received as cash flows
The IASB added a research project on the operating activities, resulting in a change to the from operating activities will need to change their
statement of cash flows and related matters to starting point for many companies. classification to improve the comparability of the
the research project pipeline in its Third Agenda statement of cash flows.
Changing the starting point will simplify the
Consultation completed in July 2022. presentation of cash flows from operating activities.
For example, it will remove some reconciling items
that companies might currently present, such as
the share of profit of associates and joint ventures
accounted for using the equity method.
Earnings per share
Can a company disclose adjusted
In addition to reporting basic and diluted earnings per earnings per share required by
share, companies are permitted by IAS 33 Earnings local law or regulation applying the
per Share to disclose additional earnings per share amendments to IAS 33?
calculated based on any component of the statement
of comprehensive income. Yes, if a company concludes that the numerator
used in an earnings per share measure
The amendments to IAS 33 permit a company to
required by local law or regulation meets the
disclose these additional earnings per share only if
definition of an MPM. The company will provide
the numerator is either a total or subtotal identified in
the disclosures for MPMs for that numerator
IFRS 18 or is an MPM.
(see Section 2.3).
A company cannot present additional earnings per
share in the primary financial statements. It can only
disclose additional earnings per share in the notes.
3—Benefits
3.1—Useful information about financial performance
Subtotals and categories in the Operating profit
The IASB expects that application of IFRS 18
will result in companies providing investors with statement of profit or loss The requirement in IFRS 18 for all companies
to present a consistently defined operating profit
additional useful information about:11
subtotal will provide useful information about financial
What investors said:
• operating performance, through the operating performance and give investors a consistent starting
profit subtotal; ‘Structure and content of the statement of profit or point for their analyses.
• performance before the effect of financing, loss varies between different companies, making
through the profit before financing and income it difficult to compare companies’ performance.’
taxes subtotal; and Operating profit is one of the most
Investors are expected to benefit from companies
• income, expenses, assets, liabilities, commonly presented subtotals in financial
presenting the new defined subtotals required by
equity and cash flows, through improved statements. In the IASB’s sample of 100
IFRS 18 in the statement of profit or loss.
aggregation and disaggregation, including companies, 61 companies presented in the
the disaggregation of specified expenses and statement of profit or loss a measure labelled
better labelling of items. The majority of investors who responded operating profit (or similarly labelled subtotal,
to a survey by the CFA Institute wanted such as profit from operations), using at least
standard‑setters to define key subtotals for nine different definitions.
companies to present in the primary financial
12
statements, such as operating profit or loss. Figure 7—Use of operating profit and similarly
labelled subtotals
39% 61%
Not used as a Used as a
subtotal in the subtotal in the
statement of statement of
profit or loss profit or loss
11 Feedback from investors suggests that alternative performance measures companies currently use to communicate with investors can provide
useful information about financial performance. The benefits of management‑defined performance measures are discussed separately in
section 3.3.
12 V Papa, S J Peters, and K Schacht, Bridging the Gap: Ensuring Effective Non-GAAP and Performance Reporting, CFA Institute, 2016.
Research on line items and subtotals A survey by the CFA Institute in 2016 found
presented by companies from 46 countries that 46% of 431 respondents (mostly buy-side The IASB’s research found that
showed that ‘value relevance’ is highest for analysts) use EBIT in their analysis.14 presentation and disclosure of EBIT varies
measures in the middle of the statement of profit or by company (see Table 5). Some companies
loss, for example, in the operating profit subtotal.13 presented EBIT in the statement of profit or
IFRS 18 defines profit before financing and income
loss or disclosed it in the notes, and others
taxes rather than EBIT and requires most companies
disclosed it outside the financial statements.
Profit before financing and income taxes to present this subtotal in the statement of profit or
loss. The IASB expects investors will use this subtotal
The requirement in IFRS 18 for companies to present Table 5—Use of subtotals labelled EBIT or
in the way they currently use subtotals such as EBIT
the subtotal of profit before financing and income taxes profit before financing by non-banking and
that seek to represent the performance of companies
is expected to provide useful information to investors non-insurance companies15
before financing and income taxes.
about company performance before the effect of
its financing. Number of
companies
Profit before financing and income taxes serves a
Provided in the financial statements 21
similar purpose to a subtotal for earnings before
interest and tax (EBIT), which investors use to of which only presented as a subtotal
compare the financial performance of companies with in the statement of profit or loss 6
varied financing structures. EBIT is commonly used of which only disclosed in the note
for screening and ratio analysis, and as a starting about segment information 7
point for forecasting cash flows. EBIT is sometimes of which presented in the statement of
used interchangeably with operating profit. Companies profit or loss and disclosed in the note
who use EBIT also vary in their presentation and about segment information 8
disclosure of it. Provided only in sections of the annual
report other than the financial statements 4
Not provided 60
Total 85
13 J Barton, T B Hansen, G Pownall, ‘Which Performance Measures Do Investors Around the World Value the Most—and Why?’, The Accounting Review, vol 85, no 3, 2010, pages 753–789. In this study, ‘value relevance’ of a
measure is explained as ‘its ability to explain variation in contemporaneous stock returns’.
14 V Papa, S J Peters, and K Schacht, Bridging the Gap: Ensuring Effective Non-GAAP and Performance Reporting, CFA Institute, 2016.
15 None of the companies in the banking and insurance industries in the IASB’s sample of 100 companies presents or discloses a subtotal labelled EBIT or profit before financing.
Grouping of information in the Grouping and labelling information Presentation of operating expenses
financial statements16 The new guidance for grouping of items in the financial The IASB expects that the guidance on the
statements is introduced to help companies determine presentation of operating expenses will help
where to present or disclose information in the companies provide the most useful structured
What investors said: financial statements and the level of detail required. summary of their expenses. This information will
be helpful to investors in analysing returns on a
‘Information is sometimes aggregated to the A company will aggregate or disaggregate line items
company’s operations and making decisions about
extent that useful information is omitted.’ to fulfil the role of the primary financial statements
future investments.
to provide useful structured summaries and
aggregate or disaggregate items to provide material Companies currently present operating expenses
The new requirements for grouping information in
financial information in the notes that supplement using a classification based on either the nature of
the financial statements are expected to increase the
those summaries. the expenses or their function within the company—
amount of useful information available to investors.
whichever provides information that is ‘reliable
The requirements include guidance on grouping and Once a company has grouped items for presentation
and more relevant’, as required by IAS 1. Some
labelling information and presentation and disclosure and disclosure, it will apply the new guidance
companies present expenses in the statement of
of operating expenses. on labelling of information to determine an
profit or loss classified both by nature and by function
informative label.
(mixed presentation).
The IASB further expects that the new guidance on the
use of the label ‘other’ in the financial statements will
lead to companies using more informative labels and A study of financial statements of 197
providing more explanation of what is captured within a European companies applying IFRS Accounting
line item labelled ‘other’. Standards showed that whether they present
expenses by nature or function was influenced
mainly by their country or industry and to some
17
degree by their audit firm.
16 Requirements related to grouping of information apply not only to income and expenses but also to assets, liabilities, equity and cash flows.
17 V Cole, J Branson, D Breesch, 'Determinants influencing the IFRS accounting policy choices of European listed companies', conference paper, International Accounting and Auditing Conference, Vrije Universiteit Brussel,
20–21 July 2013.
Disclosure of specified expenses by nature
Where will investors find information
The disclosure of five specified expenses by nature18 about unusual income and
The IASB’s analysis of 100 companies
is expected to provide investors with additional useful expenses?
also showed that the presentation of
information needed for their analyses. It will enable
operating expenses in current practice varies
investors to better understand: IFRS 18 includes no specific requirements on
by company (see Figure 8).
• what is included in line items in the statement of unusual income and expenses. Nonetheless,
profit or loss (which is useful, for example, when the IASB expects that investors will obtain
Figure 8—Presentation of expenses in the material information about such income and
statement of profit or loss performing margin analysis);
expenses through:
• how information presented in the primary financial
statements relates to information disclosed in the • the disaggregation of items with dissimilar
notes; and characteristics—for example, if an item of
income or expenses lacks persistence, a
• how line items in the statement of profit or loss
company will need to consider whether
relate to the statement of cash flows.
information about it is material and should be
Investors have told the IASB that they find information disclosed;
about expenses by nature useful to forecast future
• the description of items using labels that
operating expenses, but nature information is
faithfully represent the characteristics of those
19% By nature sometimes missing or incomplete. In the sample of
items—for example, if a company discloses
100 companies, the companies generally provided
42% By function an item because it lacks persistence, or is
some analysis of expenses by nature in the notes, but
identified as unusual, the company will label the
the range of information disclosed varied widely across
35% Mixed presentation item as such; and
the sample.
4% No analysis of expenses presented • the disclosure of information about MPMs—in
Limiting the list of disclosures to five specified some cases, unusual income and expenses
in the statement of profit or loss
expenses by nature balances the information needs might appear as adjusting items when a
of investors with the costs to companies to provide the company calculates its MPMs.
disclosures (see Section 4.1).
18 Depreciation, amortisation, employee benefits, impairment losses and reversals of impairment losses and write-downs and reversals of write-downs of inventories (see Section 2.4).
3.2—Comparability of financial information
Grouping and labelling information
The IASB expects that IFRS 18 will improve
Academic research shows that imprecision
comparability of financial information through:
in requirements for the disaggregation of
• the principles for and guidance on grouping What investors said: financial information affects the content of
and labelling information—which will improve ‘Companies often disclose items of large amounts financial statements and the comparability of
comparability between companies and between labelled as “other” with no information provided information between companies operating in
reporting periods for the same company; about what is included in the amount, which different jurisdictions.19
• the requirements for subtotals and categories reduces comparability of information.’
in the statement of profit or loss, along
with the amendments to IAS 7 for the The requirements for grouping and labelling
statement of cash flows—which will improve information, including the requirements for the label
comparability between companies; and ‘other’, are expected to improve comparability.
• the requirements to disclose information
IAS 1 requires companies to present separately
about MPMs—which will improve
each material class of similar items but does not
comparability between reporting periods for
provide detailed guidance on how to do so. The items
the same company.
disclosed in the notes vary considerably by company,
impeding comparability.
19 R Libby, S A Emett, ‘Earnings Presentation Effects on Manager Reporting Choices and Investor Decisions’, Accounting and Business Research, vol 44, no 4, May 2014, pages 410–438.
Statement of profit or loss Investors observed that these subtotals are difficult Consistent classification of income
to compare between companies because companies and expenses
present different subtotals or calculate similarly
IFRS 18 is expected to improve comparability by
What investors said: labelled subtotals differently (see Section 3.1).
introducing requirements for consistent classification
‘The structure and content of the statement of Investors expend considerable effort in comparing of income and expenses. Consistent classification will
profit or loss vary even between companies companies’ performance using their own methods for also help investors to adjust amounts presented if the
operating in the same industry.’ defining ‘operating profit’, and they cannot always be required classification of particular income or expenses
sure the outcome is accurate. in IFRS 18 differs from their needs.
‘Inconsistencies in classification of income and
expenses can reduce comparability.’ Table 6—Expected improvements in comparability IAS 1 does not have requirements for where to classify
from required subtotals income and expenses in the statement of profit or loss,
‘We need comparable subtotals as a starting
which has led to diversity in classification of income
point for analysis, including screening and
Subtotal What the subtotal enables and expenses.
ratio analysis.’
investors to compare
Required subtotals Operating profit Results from operating

or loss activities for companies
By defining and requiring the two most common in the same industry and
performance subtotals, IFRS 18 provides a consistent for companies in different
starting point for analysis and will enable investors to industries
more easily compare aspects of performance between
companies, as summarised in Table 6. Profit or loss Performance of companies
Companies have followed their own definitions for the before financing before the effects of their
subtotals they present in the statement of profit or loss, and income financing
such as operating profit and EBIT, because IAS 1 has taxes
no specific requirements for these.
The IASB’s analysis of 100 companies showed that some classify net interest expense on a net defined benefit liability in operating profit whereas others
include that expense in finance costs (see Table 7). Diversity in practice also exists for classification of foreign exchange differences (see Table 8) and income and
expenses from associates and joint ventures accounted for using the equity method (see Figure 9).
Table 7—Classification of net interest expense on net defined benefit liabilities
Number of
companies
Classified above an operating profit (or EBIT/EBITDA) subtotal 9
Classified in finance costs, below an operating profit (or EBIT/EBITDA) subtotal 33
Classification unclear 19
Did not present a subtotal labelled operating profit (or EBIT/EBITDA), nor present or disclose net interest expense on net defined benefit liabilities 39
Total 100
Table 8—Classification of foreign exchange differences
Number of
companies
Classified above an operating profit (or EBIT/EBITDA) subtotal 12
Classified below an operating profit (or EBIT/EBITDA) subtotal 33
Classified both above and below an operating profit (or EBIT/EBITDA) subtotal 16
Classification unclear 13
Did not present a subtotal labelled operating profit (or EBIT/EBITDA) 26
Total 100
How does the classification of income from associates and joint ventures in IFRS 18 help comparability?
Companies present the share of profit of associates and joint ventures accounted One factor for the diversity is that some associates and joint ventures are more
for using the equity method as a separate line item, as required by IAS 1. closely related to a company’s operating activities than others.
However, IAS 1 does not specify where this line item should appear in the
Feedback from investors
statement of profit or loss.
Investors expressed concerns that this diversity reduces comparability of the
subtotals in the statement of profit or loss, making their analysis more difficult
The IASB has observed wide diversity in practice in the presentation of and time consuming. Investors also said when analysing the performance of a
this item, as shown in Figure 9. company and determining a valuation for it, they generally analyse investments in
associates and joint ventures accounted for using the equity method separately
Figure 9—Classification of the share of profit of associates and joint from the company’s consolidated operations.
ventures accounted for using the equity method20
Requirements in IFRS 18
IFRS 18 requires a company to classify income and expenses from all associates
26% Above an operating profit and joint ventures accounted for using the equity method in the investing
(or EBIT/EBITDA) subtotal category. The IASB expects that the requirement will:
62% Between an operating profit
• reduce diversity in practice and improve comparability; and
(or EBIT/EBITDA) subtotal and
profit before tax • enhance the usefulness of the operating profit subtotal and provide a
consistent anchor for investors.
12% Below profit before tax
20 This analysis is based on the companies that present a share of profit of associates and joint ventures accounted for using the equity method and operating profit (or EBIT/EBITDA) subtotal.
Statement of cash flows Classifying interest and dividend cash flows
The IASB expects that removing the presentation
The IASB’s research found that
alternatives for cash flows related to interest and
What investors said: companies use varied starting points for the
dividends paid or received will make the statement of
indirect method of reporting cash flows from
‘Classification and presentation options make it cash flows more consistent and comparable.
operating activities in the statement of cash
difficult to compare companies’ cash flows.’ Investors said they wanted to spend less time and
flows (see Figure 10).
incur fewer cost searching for information about
interest and dividends in the statement of cash flows
Starting point for reporting operating Figure 10—Starting points for operating
and would like the IASB to make such information
cash flows cash flows21
more comparable. The IASB, therefore, decided to
The IASB expects that requiring companies to use the require a consistent classification for interest and
operating profit subtotal as a consistent starting point dividends paid or received in the statement of cash
will make the statement of cash flows more consistent flows (see Section 2.5).
and help investors analyse and compare companies’
These requirements will be simpler for companies to
operating cash flows.
apply because they will no longer be required to make
choices about how and where to classify these items.
Classification in a consistent place will also reduce the
costs to investors when searching for these items.22
47% Profit or loss
45% Profit before tax
7% Operating profit
1% EBITDA
21 Four companies in the sample of 100 companies are excluded from this table because they present operating cash flows using the direct method.
22 Companies with specified main business activities are required to classify interest received, interest paid and dividends received in a single category in the statement of cash flows (see Section 2.5).
MPMs
Academic research shows that the classification options in IAS 7 lead to diversity in the presentation
of cash flows from interest and dividends. A study of 798 companies from 13 European countries found
that in cash flows from operating activities, 76% of the sample included interest paid, 60% included interest What investors said:
received and 57% included dividends received in these cash flows. The study concluded that this kind of
‘It is not always clear how and why the calculation
diversity in presentation hinders the comparability of reported cash flows from operating activities.23
of APMs has changed since a previous
reporting period.’
The IASB has also observed diversity in the presentation of cash flows arising from interest and IFRS 18 requires companies to explain how their
dividends (see Table 9). MPMs are calculated, as well as to disclose changes
to MPMs. Companies are also required to restate
comparative information when they change the
Table 9—Classification of interest and dividends in the statement of cash flows
calculation of their MPMs or introduce new MPMs,
Number of companies except when doing so would be impracticable.
Interest Interest Dividends Dividends These requirements will improve the comparability
received paid received paid of information between reporting periods for the
same company.
Classified in operating cash flows 46 48 35 1
Classified in investing cash flows 31 0 37 0
Classified in financing cash flows 1 39 0 92
Classified in multiple categories 0 3 2 0
Classification unclear 22 10 26 7
Total 100 100 100 100
23 E A Gordon, E Henry, B N Jorgensen, C L Linthicum, ‘Flexibility in cash-flow classification under IFRS: determinants and consequences’, Review of Accounting Studies, vol 22, no 2, March 2017, pages 839–872.
3.3—Transparency of alternative performance measures
Investors’ concerns about APMs
The IASB expects that requirements in IFRS 18
to provide information about APMs that meet the Figure 11 shows the diversity in companies’
definition of MPMs will make those measures What investors said: selection of APMs. Companies do not always
more transparent. explain how they calculate their APMs or why
‘The disclosure of APMs sometimes lack they are providing such measures.
transparency into the calculation and reasons for
providing those measures.’
The CFA institute survey result said that Figure 11—Common APMs other than those
‘Even when companies do provide information labelled operating profit, EBIT, profit before
investors found APMs useful as a valuation input,
about APMs in public communications, it is often financing or EBITDA25
indicator of accounting quality and starting point
difficult to find.’
for analysis.24
Number of APMs observed

Investors said that APMs often provide useful
information about a company’s financial performance.
The IASB therefore included requirements in IFRS 18
that will improve the transparency of some APMs, 60
48 48
enabling investors to better assess the relevance of
individual measures. 21
Adjusted Adjusted Adjusted Adjusted

profit or operating EBITDA EBIT
loss profit
24 V Papa, S J Peters, K Schacht, Investor Uses, Expectations and Concerns on Non-GAAP Financial Measures, CFA Institute, 2016. In the context of accounting quality, the CFA Institute said that alternative performance
measures (APMs) are used ‘to help assess earnings quality’ and ‘to identify management misreporting incentives and choices’.
25 The IASB’s study of APMs was generally based on measures included in the annual report or financial statements of each company in the sample of 100 companies. Additional measures might have been identified if other
documents, such as earnings releases or presentation materials, had also been analysed. Some companies used more than one APM, and therefore the total is greater than the sample size of 100.
What investors said: Figure 12—Reconciliation of APMs29
Table 10 and Table 11 show that
‘The quality of the disclosures provided about
companies disclose information about APMs
APMs varies between jurisdictions and depends
in a variety of locations. Table 11 shows
on whether the measures are subject to
that EBITDA is frequently provided outside
regulation, the type of regulation and how strictly
financial statements.26
the regulations are enforced.’
Table 10—Location of information about APMs27 ‘We don’t have enough information to make
adjustments when we disagree with items
% of APMs
adjusted for in these measures.’
observed 7% Reconciliation provided with detailed
The information companies provide about APMs information on tax effects
Provided in the financial statements 41%
does not always show how these measures relate to 79% Reconciliation provided with limited
Provided only outside the financial measures defined in IFRS Accounting Standards. or no information on tax effects
statements 59%
14% No reconciliation provided
Table 11—Use of measures labelled EBITDA by The IASB’s analysis shows that (see Figure 12):
non-banking and non-insurance companies28 Even if a company provides a reconciliation for APMs,
• not all companies provide a reconciliation in some jurisdictions that information is not subject to
between APMs and totals or subtotals presented audit when provided outside of financial statements.
Number of
companies in the statement of profit or loss; and
• only a limited number of companies provide
Provided in the financial statements 26
detailed information related to the income tax
of which presented as a subtotal effect on adjusting items.
in the income statement and
disclosed in the notes 1
of which only disclosed in the notes 25
Provided only in sections of the
annual report other than the
financial statements 32 26 The analysis of measures labelled profit before financing or EBIT is covered in Section 3.1.
27 The sample only includes measures other than those labelled operating profit, EBIT, profit before financing or EBITDA.
Not provided 27
28 No companies in the banking or insurance industries in the IASB’s sample of 100 companies presented or disclosed a subtotal labelled EBITDA.
Total 85 29 The sample only includes measures other than those labelled operating profit, EBIT, profit before financing or EBITDA.
Improvements to transparency of This single note will include a reconciliation to the most
In the IASB’s analysis of the reconciliation directly comparable subtotal listed in IFRS 18 or total
some APMs or subtotal required by IFRS Accounting Standards.
between APMs and totals or subtotals presented
in the statement of profit or loss, items frequently A company will be required to apply the principles
Disclosure in financial statements
included in the reconciliation were: of aggregation and disaggregation (see Section 2.4)
The IASB expects the disclosure of information when grouping items in the reconciliation.
• restructuring costs; about MPMs to help companies communicate their
• gains or losses on disposal of property, plant or A company will also be required to disclose the income
performance to investors and to help investors better
equipment, intangible assets or investments; tax effect and the effect on non-controlling interests for
understand the company’s performance.
each reconciling item.
• impairment losses on property, plant or IFRS 18 defines MPMs and requires a company to
equipment; The reconciliation will improve investors’ understanding
disclose information about those measures in the
of the relationship between MPMs and the totals
• impairment and amortisation of intangible financial statements (see Section 2.3). If an APM
or subtotals in the statement of profit or loss. The
assets, including amortisation of intangible meets the definition of an MPM, it is subject to the
information about the income tax effect and the effect
assets recognised in business combinations; disclosure requirements in IFRS 18. Although not all
on non-controlling interests will enable investors to
• fair value remeasurements on financial performance measures defined by management meet
calculate an adjusted version of the MPM if they
instruments; the definition of MPMs in IFRS 18, the IASB expects
disagree with an adjustment that the company has
that the disclosure requirements will improve discipline
• acquisition-related costs; and used in its calculation.
and transparency in the use of measures that meet the
• legal expenses. definition of MPMs.
In particular, IFRS 18 requires disclosure of information
about MPMs in a single location in the notes to the
financial statements, making it easier for investors to
access complete information about such measures.
Disclosure in interim financial statements When a company issues condensed financial
statements or a complete set of financial statements
The IASB expects that requiring the same disclosures
for an interim period and uses measures that meet the
in both annual and interim financial statements,
definition of MPMs in its public communications for
especially the reconciliation of MPMs, will make those
the interim period, the company is required to provide
measures more transparent to investors.
the MPM disclosures relating to those measure in the
notes to those financial statements.
The IASB’s analysis of its sample of
Improvement to transparency through audit
companies shows that at least 75% of APMs
(other than those labelled operating profit, The disclosures required for MPMs will be included
EBIT, profit before financing or EBITDA) that in the financial statements and therefore, in many
were included inside or outside annual financial jurisdictions, these disclosures will generally be subject
statements were also disclosed for interim to audit. The IASB expects that assurance by auditors
periods. However, the analysis also showed will help improve transparency and discipline in the
variation in the location in which those APMs reporting of these measures.
were disclosed among the companies, similar to
the disclosure of APMs in annual reporting. Some
companies included information on APMs in
interim financial statements while others provided
it in the management discussion and analysis
(MD&A) section in interim reports or earnings
releases for the interim period.
4—Costs
4.1—Costs for companies
The IASB expects that all companies will incur some Implementation costs Operating, investing and financing categories
implementation costs, and possibly some ongoing
The likely implementation costs identified by the IASB Some companies will need to change their internal
costs, in applying IFRS 18 and the accompanying
relate to changes in internal processes for preparing processes and adapt their accounting systems to
amendments to IAS 7.
the financial statements, changes to information comply with the requirements to classify income and
Implementation costs will vary depending on the systems, training for staff and management and expenses into categories in the statement of profit
company’s current systems and reporting practices. communicating changes to reported information to or loss.
Some companies will incur lower costs than others internal and external parties.
Management of foreign exchange and derivatives
in implementing IFRS 18. For example, a company is Implementation costs are likely to arise from the
likely to incur lower costs if: The costs of applying IFRS 18 are likely to be higher
requirements to:
for companies with large volumes of derivatives
• the current reporting practices are similar to the • classify income and expenses into categories in the and foreign currency-denominated items that are
requirements in IFRS 18; or statement of profit or loss; managed centrally.
• most of the information required to apply IFRS 18 • identify and provide disclosures for MPMs, including Such companies might incur additional costs to
is available through its current systems. disclosure of the income tax effect and effect on classify foreign exchange differences and derivatives
non-controlling interests for adjustments made in in the relevant categories of the statement of profit or
calculating those measures; loss. For example, a company might decide to set up
• group information applying the principles of a system to track the underlying items giving rise to
aggregation and disaggregation; foreign exchange differences.
• disclose specified expenses by nature; and
• implement changes to the statement of cash flows. In the fieldwork the IASB conducted after
publishing the Exposure Draft, about 40% of
participating companies indicated they might need
to change their systems or internal processes
to apply the proposed requirements for the
classification of foreign exchange differences.30
30 The IASB did not propose an undue cost or effort relief for the classification of foreign exchange differences in the Exposure Draft. The IASB introduced the relief in response to feedback on the proposal in the Exposure Draft
to require companies to classify foreign exchange differences in each category in the statement of profit or loss.
Some companies have limited transactions Other costs relating to categories Changes in the classification of income and expenses
denominated in a foreign currency or use derivatives in the statement of profit or loss may affect the
The costs of classifying income and expenses
only in limited circumstances. For example, a company company’s key performance indicators (KPIs), budgets
into categories are likely to vary depending on the
might recognise foreign exchange differences only from or forecasts. If the company needs to revise these
granularity of income and expense accounts in a
trade receivables denominated in foreign currencies indicators when it applies IFRS 18, it is likely to incur
company’s current accounting systems. If a company
and use derivatives only to hedge the foreign currency additional costs.
has a detailed chart of accounts, the cost may be
risk on those trade receivables.
limited to remapping each account to the categories in The requirements to present new subtotals and
In such cases, the company is required to classify all the statement of profit or loss. line items mean that companies that digitally report
foreign exchange differences and gains and losses on their financial statements will need to retag their
However, if a company records some types of income
derivatives in the operating category. Such companies financial statements for these subtotals and line items.
or expense in aggregated accounts with labels such as
are likely to incur limited costs to classify such income Retagging is likely to involve some one-time costs (see
‘other income’ or ‘other expenses’ and does not have
and expenses into categories in the statement of profit Section 5.1).
a method to capture more detailed information, the
or loss.
costs are likely to be higher. The company will need The IASB expects that once a company has developed
to investigate the details of the income and expenses processes for classifying income and expenses into
IFRS 18 includes cost mitigations for the in those accounts, assess the classification of them, the categories in the statement of profit or loss, it is not
classification of foreign exchange differences and create new accounts and change its processes to likely to incur ongoing incremental costs to implement
gains and losses on derivatives (see Section 4.2). classify income and expenses in the appropriate the requirements for subtotals and categories.
categories. Companies that have many subsidiaries
using varied accounting systems may incur
additional costs.
Disclosures for MPMs For companies that already provide such a
When should a company begin its reconciliation and make these disclosures, the
assessment of classification of The costs for implementing the disclosure
incremental costs of including these disclosures in the
income and expenses? requirements related to MPMs are expected to vary
financial statements are likely to be limited.
by company.
A company is required to apply IFRS 18 The reconciliation is expected to be subject to audit
Companies that already communicate using measures
retrospectively, which means restating (see Section 3.3). Some companies will need to
that are MPMs will incur some costs to implement
comparative information when it first applies develop or revise the internal processes they use for
IFRS 18 if they do not currently provide all the required
IFRS 18. preparing the reconciliation and will incur costs in
disclosures and continue to use those measures in
having the reconciliation audited.
For some companies it will be difficult to change public communications after applying IFRS 18.
the classification of income and expenses The requirement to disclose the income tax effect
In some jurisdictions that already have regulatory
retrospectively because their systems did not and the effect on non-controlling interests for each
guidance or requirements for APMs, such as the
previously capture the required information. adjusting item in the MPM reconciliation will result in
European Union, the United Kingdom, Canada and
Those companies are likely to need to start costs for many companies. Determining the income tax
Australia, companies may already have some of the
the work sooner in order to complete their effect could be more challenging if a company adjusts
information required for the disclosure of MPMs.
assessment of classification of income and for items that arise in different tax jurisdictions.
expenses before the beginning of the comparative Companies that do not communicate using measures
period(s)—1 January 2026 if the company applies that are MPMs will not incur costs related to the
IFRS 18 includes cost mitigations for the
IFRS 18 on its effective date of 1 January 2027 requirements for MPMs.
identification of MPMs and a simplified
and presents one year of comparative information. approach to calculating the income tax effect
Reconciliation of MPMs
Companies that prepare interim financial reports (see Section 4.2).
Companies that communicate using measures that
in the first year of applying IFRS 18 are required
are MPMs are likely to incur costs in providing a
to present each subtotal required by IFRS 18 in
reconciliation between those measures and the most
their condensed financial statements—including
directly comparable subtotal listed in IFRS 18 or total
information for the comparative period(s).
or subtotal required by IFRS Accounting Standards,
Therefore, such companies should also allow time
and in providing the other disclosures required for
and budget for preparing interim financial report(s)
MPMs (see Section 2.3).
in the first year of applying IFRS 18.
Are there likely costs for a company that continues to communicate with investors using the
same subtotal of income and expenses it used before applying IFRS 18?
The subtotal would meet the definition of an MPM unless:

• it is listed in IFRS 18 or specifically required by IFRS Accounting Standards; or
• the company rebuts the presumption that a subtotal of income and expenses used in public
communications communicates management's view (see Section 2.3).
Companies will provide disclosures for MPMs for these subtotals, which may result in additional costs for
such companies.
For example, assume that before applying IFRS 18, a company:
• disclosed adjusted EBIT (EBIT adjusted for non-recurring items determined by the company) in its
public communications;
• provided no information related to the adjusted EBIT other than a reconciliation between adjusted EBIT
and profit before income taxes, which was disclosed outside the financial statements; and
• did not disclose the income tax effect and effect on non-controlling interests.
In this case, if the company continues to disclose adjusted EBIT after applying IFRS 18, the company will:
• consider which total or subtotal is the most directly comparable with adjusted EBIT. This may require the
company to change the total or subtotal to which adjusted EBIT is reconciled.
• disclose information about adjusted EBIT such as qualitative information about why the measure provides
useful information about the company’s financial performance and how the measure is calculated,
including how the company determined the adjusting items. This may require the company to provide
additional information on how the reconciling items relate to the statement of profit or loss.
• disclose the income tax effect and effect on non-controlling interests for each reconciling item. This may
require the company to gather additional information.
Grouping of information Disclosure of specified expenses by nature
Companies that will be required to disclose the Why did the IASB identify these five
Application of the principles for grouping of information items for the disclosure requirement?
five specified expenses by nature—depreciation,
Applying the principles of aggregation and amortisation, employee benefits, impairment losses
disaggregation is likely to result in incremental costs for and write-downs of inventories—will incur costs if they IFRS 18 requires a company to disclose the
most companies. currently disclose only limited information about some amounts for these five items because:
Some companies will incur costs in implementing of these expenses.
• limiting the requirement to five items results in
an internal process to ensure compliance with the For example, if a company is currently disclosing only useful information for investors without causing
aggregation and disaggregation requirements in the total amounts of depreciation, amortisation and undue costs for preparers.
IFRS 18. employee benefits, it will need to gather additional
• depreciation, amortisation and employee
Some companies may also incur costs in applying the information to disclose the amount of each of the five
benefits will likely be included in more than one
requirements to disaggregate some items that they specified expenses included in each line item in the
function line item in the statement of profit or
currently aggregate under the label ‘other’. operating category of the statement of profit or loss.
loss. Disaggregated information about them is
generally useful for understanding a company’s
Presentation of expenses classified in the
The IASB introduced some cost mitigations in business, regardless of its industry.
operating category
IFRS 18 related to disclosing information about
• some stakeholders view impairment losses as
Companies are likely to incur implementation costs for expenses by nature (see Section 4.2).
similar to depreciation or amortisation (because
assessing how to present expenses in the operating of their non-cash nature).
category using the new guidance on classification by
nature or function (see Section 2.4). • impairment losses and write-downs of
inventories are sometimes included in more
If a company determines that it is required to change than one line item in the statement of profit
the way it presents expenses in the operating category or loss. Even if they are included in only one
as a result of that assessment, it will incur additional line item, disclosure in a single note together
costs to implement the change. For example, if a with other nature expenses would make such
company determines that it needs to change from information more accessible for investors.
classification of expenses by nature to classification
of some or all operating expenses by function,
it will need to change its systems and internal
processes accordingly.
Statement of cash flows Costs for education and communication Costs for external communications
The IASB expects that the requirement to use The IASB expects that companies will also incur costs The IASB expects that companies will incur costs in
operating profit as the starting point for the indirect for internal education and external communications communicating with external parties, such as investors
method of reporting cash flows from operating when they first apply IFRS 18. and lenders, about the changes in its reported
activities may result in costs for some companies information, including:
to adapt their systems. Costs will depend on the Costs for internal education
• variations in the structure of the statement of profit
company’s current starting point for reporting cash The IASB expects that companies will incur costs for or loss and the content and amount of operating
flows from operating activities, and the extent to which educating staff on the requirements in IFRS 18. Staff profit if the company presented an operating profit
they prepare the statement of cash flows automatically will need to be trained, for example, in understanding subtotal before applying IFRS 18 (see Section 2.2);
from data in their accounting systems. the classification of income and expenses into
• which APMs are MPMs and therefore which
The removal of alternatives in the classification of categories in the statement of profit or loss.
information will be disclosed in the financial
interest and dividend cash flows required by the Applying IFRS 18 may lead to changes in formulas statements (see Section 2.3); and
amendments to IAS 7 is not expected to be costly to for calculating the remuneration of management and • any changes made in the presentation and
implement because companies typically already have other employees (discussed in Section 5.2), or in the disclosure of items in the financial statements as a
the necessary information to implement the change. company’s KPIs. If this is the case, companies may result of applying the principles of aggregation and
However, some companies may incur costs to adapt incur additional costs for educating all employees and disaggregation (see Section 2.4).
their systems to reflect those changes. executives on the requirements in IFRS 18 that will
affect remuneration and the company’s KPIs.
Ongoing costs Even if there are no significant changes to a
company’s business, requirements in IFRS 18 may
The IASB expects that most costs related to result in ongoing costs when, for example:
the requirements in IFRS 18 will be one-time
implementation costs. However, companies might incur • a company’s processes require the collection of data
some ongoing costs in applying parts of IFRS 18 when manually; or
there are changes in a company’s business, how it • a company has items labelled as ‘other’ that need
operates or how it communicates performance. to be disaggregated into items to be separately
presented in the primary financial statements or
For example, when there is a significant change to
disclosed in the notes, because the composition of
a company such as a business combination or a
‘other’ changes from period to period.
restructuring, the company may be required:
However, such ongoing costs are expected to
• to exercise judgement on whether the change decrease gradually or be eliminated as new systems
affects the assessment of the company’s main are implemented and processes and procedures
business activities, which would lead to changes become embedded in the company’s ordinary routines.
in the classification of income and expenses in the
statement of profit or loss (see Section 2.2);
• to consider whether the change leads to an addition,
change or cessation of MPMs, which would require
new information to be disclosed because of the
change in its business (see Section 2.3); and
• to consider whether to change the line items, totals
and subtotals the company presents in the primary
financial statements and discloses in the notes to
achieve their roles (see Section 2.4).
4.2—Cost mitigations for companies
The IASB introduced the cost mitigations summarised in Table 12 to ensure that, in providing useful information to investors about their performance, companies will not
incur undue costs.
Table 12—Overview of cost mitigations in IFRS 18
Cost mitigations
Subtotals and categories • Reliefs for undue cost or effort for classification in the statement of profit or loss of:
о gains or losses on derivatives not designated as hedging instruments applying IFRS 9 Financial Instruments; and
о foreign exchange differences
• Accounting policy choice for companies that provide financing to customers as a main business activity
• Grouping of assets with shared characteristics for purposes of assessing whether investments are made as a main business activity
MPMs • Exclusion of some communications from public communications

• Rebuttable presumption in the definition of MPMs
• Simplified approach to calculating income tax effects for each reconciling item disclosed in MPM reconciliations
Grouping of information • Limiting the requirement to disclose specified expenses by nature to five
• Amounts disclosed for nature expenses may be the cost incurred for the period
Simplifications and reliefs for Table 13—Undue cost or effort reliefs for classification of income and expenses
subtotals and categories Item Details of undue cost or effort relief

Undue cost or effort reliefs for the Derivatives used to manage A company will classify all gains and losses on those derivatives in the
classification of income and expenses identified risks but not operating category if classifying gains and losses in the category of the
The IASB acknowledged that some of the designated as hedging statement of profit or loss affected by the risk managed would involve
classification requirements could impose substantial instruments applying IFRS 9 undue cost or effort.
implementation costs on some companies.
Therefore, IFRS 18 includes reliefs for classification Foreign exchange differences A company will classify foreign exchange differences in the operating
in the statement of profit or loss for two items category if classifying them in the same category as the income and
summarised in Table 13. expenses from the items that gave rise to them would involve undue cost
or effort.
Accounting policy choice for companies that category, income and expenses from all liabilities that Grouping of assets to assess whether
provide financing to customers as a main arise from transactions that involve only the raising investments are made as a main
business activity of finance will be classified in the operating category. business activity
Such a company is therefore not required to separate
If a company provides financing to customers as a IFRS 18 permits a company to assess whether it
those liabilities into liabilities that relate—and do not
main business activity, IFRS 18 permits it to choose invests in assets as a main business activity by
relate—to the provision of financing to customers.
to classify income and expenses from liabilities in the assessing groups of assets with shared characteristics.
operating category or in the financing category if those IFRS 18 also introduces a similar accounting policy For example, a company may invest in only a single
liabilities (see Section 2.2): choice to classify in the operating category or in the type of asset, such as investment properties, for which
investing category income and expenses from cash the outcome of the assessment will be the same for
• arise from transactions that involve only the raising
and cash equivalents that do not relate to providing each property. Permitting companies to conduct the
of finance; and
financing to customers. This accounting policy choice assessment for groups of assets is expected to reduce
• do not relate to the provision of financing to is for companies that do not invest in financial assets the cost of the assessment.
customers. as a main business activity but provide financing to
If a company chooses to classify income and customers as a main business activity.
expenses from these liabilities in the operating
Simplifications and reliefs for MPMs Rebuttable presumption in the definition Simplified approach for calculating the
of MPMs income tax effect for items disclosed in the
Scope of public communications Companies need not make the required disclosures
reconciliation
For the purpose of defining MPMs, IFRS 18 about a subtotal used in public communications if In determining the income tax effect for each item
excludes the following from public communications there is reasonable and supportable information disclosed in a reconciliation between an MPM and the
(see Section 2.3): demonstrating that: most directly comparable subtotal listed in IFRS 18
or total or subtotal required by IFRS Accounting
• oral communications; • the subtotal does not communicate management’s
Standards, IFRS 18 gives companies the option of
• written transcripts of oral communications; and view of an aspect of the company’s financial
calculating the income tax effects using:
performance; and
• social media posts.
• the company has a reason for using the subtotal in • the statutory tax rates applicable to the transactions
The IASB expects these media channels to contain in the tax jurisdictions concerned;
its public communications other than communicating
information already included in other forms of
management’s view of an aspect of the company’s • a reasonable pro rata allocation of the current and
communication, so the risk of excluding measures that
financial performance. deferred tax of the company in the tax jurisdictions
would otherwise meet the definition of an MPM is low.
IFRS 18 includes application guidance on what is concerned; or
Some stakeholders said that these types of considered reasonable and supportable information. • another method that achieves a more appropriate
communications are the most challenging to monitor. For example, the fact that a subtotal is required to be allocation in the circumstances.
Removing these types of communication is expected included in a public communication by law or regulation The IASB expects that providing these options will
to reduce the costs of applying the definition of MPMs would be reasonable and supportable information reduce the costs of calculating the income tax effect for
by eliminating the need for companies and auditors to demonstrating that a company has a reason for using each item in the MPM reconciliation.
search them. a subtotal in its public communications other than to
communicate management’s view of an aspect of the
company’s financial performance.
If the company rebuts the presumption, the subtotal
will not be an MPM.
The IASB expects that excluding such subtotals from
their MPM disclosures will reduce costs for companies
without affecting the objectives of disclosing
information about MPMs.
Simplifications and reliefs for grouping Exemptions from general disaggregation
requirements
of information
IFRS 18 specifically requires companies to
Amount disclosed for specified expenses disaggregate information if any of the resulting
by nature information is material. If required to apply this
When companies make their required disclosures of requirement to operating expenses reported in function
the five specified expenses by nature (depreciation, line items, companies would be required to disclose
amortisation, employee benefits, impairment losses information about each operating expense by nature in
and write-downs of inventories), the amounts disclosed the notes, if it were material.
need not be the amounts recognised as an expense in Such a requirement could have involved costs for
the statement of profit or loss in the reporting period. companies that outweigh the benefits of providing
For example, a company could include amounts in the that information to investors. A company that reports
disclosure that have been recognised as part of the operating expenses by function would incur additional
carrying amounts of assets. costs to identify material information about operating
expenses by nature, including costs to identify
Some companies said that, for the five specified whether such information would be material. The IASB
expenses by nature, it could be too costly to therefore decided to limit the disclosure requirements
determine the amounts recognised as an expense for such companies by including exemptions to the
during a reporting period. They were concerned that requirement in IFRS 18 to disaggregate material
companies might incur undue costs to track amounts information in relation to operating expenses by nature.
not immediately recognised as an expense in the
statement of profit or loss but instead included in the
carrying amount of assets—for example, inventories.
Investors said that their information needs could be
met by a reasonable approximation of the amounts of
specified operating expenses by nature in each line
item. The IASB concluded that information about the
costs incurred would meet those needs.
4.3—Costs for investors and other stakeholders
Costs for investors Costs for regulators and auditors The IASB expects that auditors will incur
implementation and ongoing costs for auditing the
The IASB expects that the costs for investors will The IASB expects that regulators will incur some costs disclosures related to MPMs—which will be included in
arise mostly from adjusting their models and methods relating to the requirements in IFRS 18—for example, the financial statements—because they will be subject
of analysis to the new structure of the statement a regulator may incur costs to revise regulatory to audit in many jurisdictions.
of profit or loss and the additional information templates and to develop procedures to regulate the
provided. Such costs will be incurred when IFRS 18 is new requirements. The costs incurred by regulators are Likely costs for auditors include:
first implemented. expected to vary by jurisdiction because regulations • costs of auditing a company’s internal controls and
are specific to each jurisdiction. procedures relating to disclosures of MPMs; and
Investors might incur further costs from assessing
long-term trend information. Investors will bear these In some jurisdictions, some amounts reported • costs of expanding the audit scope to assess
costs because they consider trends over longer applying IFRS Accounting Standards fulfil regulatory whether a company discloses information required
periods such as five years whereas most companies and prudential requirements. Therefore, changes to by IFRS 18 in the financial statements for all
present comparative information for just one or two presentation and disclosure requirements introduced measures that are MPMs.
years in the financial statements. The costs to investors by IFRS 18 might affect regulatory reporting. In addition, auditors are expected to incur ongoing
of assessing trend information is likely to relate to costs in evaluating the judgements made by
If a regulator requires companies to disclose
estimating the effects of IFRS 18 on the statement companies in applying IFRS 18, such as the
information about APMs outside the financial
of profit or loss for prior comparative periods—which judgements a company makes on presentation of
statements, the regulator may need to consider the
IFRS 18 does not require companies to do. line items in the primary financial statements and
relationship of such regulatory requirements and
However, the IASB expects that IFRS 18 will ultimately the requirement in IFRS 18 to disclose information disclosure of items in the notes.
save costs for investors by requiring companies to about MPMs.
provide them with more information that they need for
A regulator is also likely to incur ongoing costs to
their analyses.
enforce the new requirements for MPMs and the
grouping of information.
5—Other effects
5.1—Effects on digital reporting
IFRS Accounting Taxonomy Digital reporting for investors
In some jurisdictions, companies are required Investors require digital information that:
to provide both paper-based and digital
• is comparable between companies and periods;
financial statements.
• communicates company-specific information;
The IFRS Accounting Taxonomy reflects the
• is in an easily usable format;
presentation and disclosure requirements of
IFRS Accounting Standards and includes elements • is consistently available; and
from the accompanying materials such as • is free from errors.
Implementation Guidance and Illustrative Examples. However, digital information that comes directly from
The IASB is developing an IFRS Accounting Taxonomy companies does not always meet these requirements.
Update incorporating the requirements of IFRS 18. As a result, many investors instead rely on paid
The IASB expects the update to be available 9–12 services from information intermediaries, such as
months after IFRS 18 is issued. data aggregators, who can supply data that has been
standardised and is comparable.
The IASB expects that IFRS 18 will contribute to
improving the quality of digital reporting (for example,
through the presentation of defined subtotals in
the statement of profit or loss and the disclosure
of information related to MPMs). Table 14 analyses
the likely effects of the IFRS 18 requirements on
digital reporting.
Table 14—Likely effects of IFRS 18 on digital reporting
Investor needs Current practice Likely effects of IFRS 18
Comparable Diversity in reporting practices results in companies tagging: The new structure for the statement of profit or loss will reduce diversity
between in reporting practices, which will reduce diversity in tagging.
• comparable data in various ways; and
companies and
• non-comparable data in the same way. The subtotals defined in IFRS 18 will be comparable between
periods
companies and will give investors an anchor point, which they can use
Investors often assume information tagged using the same
to develop a ‘mental map’ of the statement of profit or loss when they
IFRS Accounting Taxonomy element is comparable, but that is not
extract data points.
always the case.
Communicate Company-specific information, such as APMs are: Disclosures of information about MPMs (including reconciliations to the
company-specific most directly comparable subtotal listed in IFRS 18 or total or subtotal
• tagged using extensions; or
information required by IFRS Accounting Standards) are included in a single note to
• not tagged at all—some APMs are not required to be tagged by some the financial statements, making them more likely to be tagged.
regulators.
New IFRS Accounting Taxonomy elements resulting from the new
Therefore, such information is difficult to extract and analyse.
disclosure requirements will reduce the need for companies to create
their own extensions.
Available in Investors either use information intermediaries or need to invest time The cost of using digital data will be reduced through:
an easily in understanding XBRL (eXtensible Business Reporting Language)
• enhanced comparability of subtotals between companies; and
usable format calculations and make manual adjustments to normalise subtotals and
otherwise make data comparable. • required disclosure of MPMs in a single note, which will make such
measures easier to extract.
Consistently The IFRS Accounting Taxonomy contains elements for commonly Required subtotals in IFRS 18 of operating profit and profit before
available reported line items and subtotals such as operating profit. financing and income taxes will be consistently available. A company
would be expected to tag two subtotals required by IFRS 18 even if the
However, not all companies report such line items and subtotals,
two subtotals are equal and presented as a single amount with a label
making it difficult to compare large samples of companies.
that represents both subtotals.
Free from Tagged information in digital financial statements is not free from errors. There is no evidence that IFRS 18 will have a significant effect on the
errors number of errors.
5.2—Effects on contracts, agreements and compensation
Contracts and agreements Compensation
IFRS 18 affects the presentation and disclosure Many companies have remuneration policies for
of information in the financial statements. IFRS 18 management based on particular measures in the
does not change the way companies recognise statement of profit or loss. In the IASB’s sample of 100
and measure items in the financial statements and companies, performance measures commonly linked
therefore does not affect companies’ overall financial to management remuneration included operating profit,
performance and financial position. However, the EBIT, EBITDA, profit or loss (net income) and other
IASB observed that when information reported in APMs, such as adjusted operating profit and adjusted
financial statements is used to monitor compliance net income.
with contracts and agreements, the new requirements
IFRS 18 defines operating profit (see Section 2.2)
might affect those contracts and agreements.
and requires a company to disclose information
For example, covenants in banking and loan about MPMs (see Section 2.3). Companies with
agreements might impose minimum requirements management remuneration policies based on
for measures such as the operating profit subtotal particular measures in the statement of profit or loss
presented in a borrower’s financial statements. Many will need to consider whether to change their policies
companies that present such subtotals might need to to reflect changes to those measures when applying
change what they include in the subtotals to align with IFRS 18.
the requirements in IFRS 18 (see Section 2.2).
For example, if a company’s operating profit presented
In such cases, the parties to the contract or agreement after applying IFRS 18 is different from the company’s
will need to consider how the changes introduced by operating profit as reported prior to applying IFRS 18,
IFRS 18 could affect the contract or agreement. In the company might consider whether to change the
contrast, the changes introduced by IFRS 18 will have measure in the remuneration policy to operating profit
no effect on loan covenants that specify the calculation as defined in IFRS 18.
of such requirements without reference to amounts in
In addition, if measures linked to management
remuneration meet the definition of MPMs, a company
will provide the MPM disclosures for such measures.
Appendix—Case study: Statement of profit or loss
Case study: Statement of profit or loss
This case study illustrates changes in the classification of six items of income and expenses for a manufacturer that does not have any specified main business activities.
Statement of profit or loss applying IAS 1 Statement of profit or loss applying IFRS 1831
Change in the classification of income and expenses
Revenue 350,000 Revenue 350,000 after applying IFRS 18
Cost of sales (200,000) Cost of sales (200,000)
Fair value gains and rental income from
Gross profit 150,000 Gross profit 150,000 investment properties will be classified in the
1
Operating
Other operating income 15,000 1 Other operating income 10,500 investing category (included in other operating
Selling expenses (30,000) income before IFRS 18)
Selling expenses (30,000)
General and administrative expenses (44,000) Net interest expense on net defined benefit
General and administrative expenses (45,000) 2 liabilities will be classified in the financing
Research and development expenses (20,000)
Research and development expenses (20,000)
2 category (included in general and administrative
5 Other operating expenses (7,500)
Share of profit from associates and expenses before IFRS 18)
joint ventures
3,500 3 Operating profit 59,000
Share of profit from associates and Income and expenses from associates and joint
Other operating expenses (6,000) 3 3,500 ventures accounted for using the equity method
Investing
joint ventures
Operating profit 67,500
3 will be classified in the investing category
1
Other investment income 5,000 (included in operating profit before IFRS 18)
Finance income 500 4 4
Interest income on cash and cash equivalents
5 Profit before financing and
Finance costs (7,500) income taxes
67,500 4 will be classified in the investing category
(included in finance income before IFRS 18)
6 6 Income and expenses on borrowings (6,000)
Financing
Profit before income taxes 60,500 Foreign exchange differences arising from trade
Interest expense on lease and
2 (1,000) receivables will be classified in the operating
Income tax expense (15,500) pension liabilities 5 category (included in finance costs before
Profit 45,000 IFRS 18)
Profit before income taxes 60,500
Income tax expense (15,500) Foreign exchange differences arising from
borrowings will be classified in the financing
Profit 45,000
6 category (included in finance costs before
IFRS 18)
31 The line items illustrate what is included in each category and do not denote line items that any particular company would present. Gross profit
and profit before income taxes are presented as additional subtotals because they are necessary for the statement of profit or loss to provide a
useful structured summary of income and expenses.
Important information
This Effects Analysis accompanies, but is not part of, IFRS 18 Presentation and Disclosure in Financial Statements.
Other relevant documents
IFRS 18 Presentation and Disclosure in Financial Statements—specifies requirements for the presentation and disclosure of information in general purpose
Basis for Conclusions on IFRS 18—summarises the IASB’s considerations in developing the requirements in IFRS 18.
Illustrative Examples on IFRS 18—illustrates aspects of IFRS 18 without interpretative guidance.
Supporting Materials—includes flowcharts of key requirements in IFRS 18.
Project Summary on IFRS 18—provides an overview of the project to develop IFRS 18.
Feedback Statement on IFRS 18—summarises feedback on the proposals that preceded IFRS 18 and the IASB’s response.
Reference Materials—includes a table of concordance and a comparison of the requirements in IAS 1 and IFRS 18.
IFRS 18 on one page.
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April 2024

IFRS 18 Presentation and Disclosure in Financial Statements

What is the purpose of this Effects Analysis?

Statement of • Classification of income and expenses in three new defined

Notes to • Disclosure of management-defined performance measures (MPMs)

• Disclosure of specified expenses by nature included in each line item

from page from page

Section 1 Introduction 9 Section 4 Costs 44

Section 2 Changes to accounting requirements 13 4.1—Costs for companies 45

2.1—Overview of changes introduced by IFRS 18 14 4.2—Cost mitigations for companies 52

2.2—Subtotals and categories 15 4.3—Costs for investors and other stakeholders 56

2.3—Management-defined performance measures 20 Section 5 Other effects 57

2.4—Grouping of information 24 5.1—Effects on digital reporting 58

2.5—Other changes to financial reporting 27 5.2—Effects on contracts, agreements and

3.2—Comparability of financial information 34

3.3—Transparency of alternative performance

5% Africa and Middle East

Income and expenses from hybrid contracts

Identifying management-defined performance measures Disclosure of information about management-defined

What are management-defined Figure 4—MPMs and other performance measures

Subtotals of income and expenses No

Is there reasonable and supportable information Yes

Communicate management’s view of

IFRS 18 presumes that a subtotal of income and

• a description of the aspect of financial General and administrative expenses – 3,800 –

Required subtotals Operating profit Results from operating

Table 7—Classification of net interest expense on net defined benefit liabilities

Table 8—Classification of foreign exchange differences

45% Profit before tax

Number of APMs observed

Adjusted Adjusted Adjusted Adjusted

The subtotal would meet the definition of an MPM unless:

MPMs • Exclusion of some communications from public communications

subtotals and categories Item Details of undue cost or effort relief

Investor needs Current practice Likely effects of IFRS 18

Copyright © 2024 IFRS Foundation

Tel +44 (0) 20 7246 6410

International Financial Reporting Standards®, IFRS Foundation®,

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Section 1 Introduction 9 Section 4 Costs 44