Summary of IFRS 18

Objective

The objective of IFRS 18 is to set out requirements for the presentation and disclosure of
information in general purpose financial statements (financial statements) to help ensure they
provide relevant information that faithfully represents an entity’s assets, liabilities, equity, income
and expenses. [IFRS 18.1]

Scope

IFRS 18 applies to all financial statements that are prepared and presented in accordance with
International Financial Reporting Standards (IFRSs). [IFRS 18.2] Standards for recognising,
measuring, and disclosing specific transactions are addressed in other Standards and
Interpretations. [IFRS 18.4]

Key definitions

[IFRS 18: Appendix A]

Aggregation

The adding together of assets, liabilities, equity, income, expenses or cash flows that share
characteristics and are included in the same classification.

Classification

The sorting of assets, liabilities, equity, income, expenses and cash flows based on shared
characteristics.

Disaggregation

The separation of an item into component parts that have characteristics that are not shared.

General purpose financial reports

Reports that provide financial information about a reporting entity that is useful to primary users
in making decisions relating to providing resources to the entity. Those decisions involve decisions
about:

(a) buying, selling or holding equity and debt instruments;

(b) providing or selling loans and other forms of credit;

(c) exercising rights to vote on, or otherwise influence, the entity’s management’s actions that
affect the use of the entity’s economic resources.

General purpose financial reports include—but are not restricted to—an entity’s general purpose
financial statements and sustainability-related financial disclosures.

General purpose financial statements

A particular form of general purpose financial reports that provide information about the reporting
entity’s assets, liabilities, equity, income and expenses.

Management-defined performance measure

A subtotal of income and expenses that:

(a) an entity uses in public communications outside financial statements;

(b) an entity uses to communicate to users of financial statements management’s view of an aspect
of the financial performance of the entity as a whole; and

(c) is not listed in paragraph 118 of IFRS 18, or specifically required to be presented or disclosed
by IFRS Accounting Standards.

Material information
Information is material if omitting, misstating or obscuring it could reasonably be expected to
influence decisions that the primary users of general purpose financial statements make on the
basis of those financial statements, which provide financial information about a specific reporting
entity.

Notes

Information in financial statements provided in addition to that presented in the primary financial
statements.

Operating profit or loss

The total of all income and expenses classified in the operating category.

General requirements for Financial Statements

The objective of financial statements is to provide financial information about a reporting entity’s
assets, liabilities, equity, income, and expenses that is useful to users of financial statements in
assessing the prospects for future net cash inflows to the entity and in assessing management’s
stewardship of the entity’s economic resources. [IFRS 18.9]

A complete set of financial statements comprises: [IFRS 18.10]

a statement (or statements) of financial performance for the reporting period (presented as either a
single statement or by presenting a statement of profit or loss immediately followed by a separate
statement presenting comprehensive income beginning with profit and loss); a statement of
financial position as at the end of the reporting period; a statement of changes in equity for the
reporting period; a statement of cash flows for the reporting period; notes for the reporting period;
comparative information in respect of the preceding period as specified by the standard; a
statement of financial position as at the beginning of the preceding period if the entity applies an
accounting policy retrospectively, makes a retrospective restatement of items in its financial
statements or reclassifies items in its financial statements (given that this results in material
information). [IFRS 18.37]

IFRS 18 identifies the statements listed above as “primary financial statements” and they all are
required to be presented with equal prominence. [IFRS 18.14]. Regards the statements’ titles, an
entity may use other than those stated above. [IFRS 18.11]

IFRS 18 assigns distinct and complementary roles to the primary financial statements as well as to
the notes: The primary financial statements offer structured summaries of an entity's recognized
assets, liabilities, equity, income, expenses, and cash flows, assisting users in understanding the
entity's financial status, making comparisons across entities and reporting periods, and identifying
areas requiring further information. The notes, on the other hand, supplement these primary
financial statements by providing additional, necessary material information to ensure
comprehension of line items and advance the overall objective of financial reporting. [IFRS 18.15-
17]
Some IFRS Accounting Standards mandate specific information to be included in the primary
financial statements or notes. However, an entity is not required to provide such presentation or
disclosure if the resulting information is immaterial, even if the standards list them as specific or
minimum requirements. [IFRS 18.19] On the other hand, an entity should evaluate whether extra
disclosures are necessary when adhering to the specific guidelines in IFRS Accounting Standards
doesn't sufficiently allow financial statement users to understand the impact of transactions and
other events on the entity's financial position and performance. [IFRS 18.20]

To provide a useful structured summary in a primary financial statement, the specific requirements
in IFRS 18 that determine the structure of the statement need to be complied with. [IFRS 18.22]
Although some IFRS Accounting Standards require specific line items to be presented separately
in the primary financial statements, an entity does not need to do so if this is not necessary for the
statement to provide a useful structured summary, even if the standards list certain line items as
specific or minimum requirements. [IFRS 18.23] Additional line items and subtotals need to be
presented if such presentations are necessary for a primary financial statement to provide a useful
structured summary. However, such additional line items or subtotals need to fulfill specific
conditions as listed in the standard. [IFRS 18.24]

The standard requires an entity to clearly identify the financial statements, which must be
distinguished from other information in the same published document, as well as each primary
financial statement and the notes to the financial statements. [IFRS 18.25-27]

In addition, the following information must be displayed prominently, and repeated as necessary:
[IFRS 18.27]

the name of the reporting entity and any change in the name whether the financial statements are
a group of entities or an individual entity information about the reporting period the presentation
currency (as defined by IAS 21 The Effects of Changes in Foreign Exchange Rates) the level of
rounding used (e.g., thousands, millions).

There is a presumption that a complete set of financial statements will be prepared at least annually.
If the annual reporting period changes and financial statements are prepared for a different period,
the entity must disclose the reason for the change and state that amounts are not entirely
comparable. [IFRS 18.28]

An entity is required to retain the presentation, disclosure, and classification of items in the
financial statements from one period to the next unless a change is justified either by a change in
circumstances or a requirement of a new IFRS. [IFRS 18.30]

Comparative information needs to be disclosed in respect of the previous period for all amounts
reported in the financial statements, both on the face of the primary financial statements and in the
notes, unless another Standard requires otherwise. Comparative information is provided for
narrative and descriptive information where it is necessary to understanding the current period’s
financial statements. [IFRS 18.31] In each of the primary financial statements and in the notes, an
entity needs to present a current and a preceding period. [IFRS 18.32] Where comparative amounts
are changed or reclassified, various disclosures are required. [IFRS 18.33]; disclosures are also
required when it is impracticable to reclassify comparative amounts. [IFRS 18.34]

Aggregation and disaggregation

An entity is required to aggregate or disaggregate information in the primary financial statements

and accompanying notes. Items should be aggregated based on shared characteristics and
disaggregated based on characteristics that are not shared. The process should enable primary
financial statements and notes to fulfill their roles and must not obscure material information.
[18.41]
It is specifically required to label and describe items presented in the primary financial statements
(that is, totals, subtotals and line items) or items disclosed in the notes in a way that faithfully
represents the characteristics of the item, i.e., by providing all descriptions and explanations
necessary for a user of financial statements to understand the item. [18.43]

Assets and liabilities, and income and expenses, may not be offset unless required or permitted by
an IFRS. [18.44]

Specific requirements for the individual primary financial statements

Statement of Profit or Loss

All items of income and expense in a reporting period are required to be included in the statement
of profit or loss unless an IFRS Accounting Standard requires or permits otherwise. [IFRS 18.46]
They then need to be classified in one of five categories in the statement of profit or loss: [IFRS
18.47]

the operating category where an entity is required to classify all income and expenses that are not
classified in the other categories ([IFRS 18.52]); the investing category; the financing category;
the income taxes category; and the discontinued operations category.

To classify income and expenses in the operating, investing, and financing categories, an
assessment is needed whether an entity has a specified main business activity—that is a main
business activity of investing in particular types of assets or providing financing to customers.
[IFRS 18.49] If this is the case, the entity classifies in the operating category some income and
expenses that would have been classified in the investing or financing category if the activity were
not a main business activity. [IFRS 18.50]
An entity that does not have a specified main business activity is required to classify in the
investing category income and expenses (e.g., income generated by the assets etc.) from: [IFRS
18.53-54]

(a) investments in associates, joint ventures and unconsolidated subsidiaries; (b) cash and cash
equivalents; and (c) other assets if they generate a return individually and largely independently
of the entity’s other resources.

When an entity however invests in assets as a main business activity, it will classify in the operating
category the income and expenses that arise from those assets that would otherwise be classified
in the investing category. [IFRS 18.53] There are two exceptions to this principle with respect to
income and expenses from investments in associates, joint ventures and unconsolidated
subsidiaries accounted for using the equity method and cash and cash equivalents are excluded
from the assessment. [IFRS 18.53-54]

For an entity that does not provide financing to customers as a specified main business activity,
the financing category comprises income and expenses from liabilities arising from transactions
that involve only the raising of finance (e.g., debentures, loans, notes, bonds and mortgages) and
interest income and expenses and the effects of changes in interest rates from liabilities arising
from transactions that do not involve only the raising of finance (e.g., payables for goods or
services, lease liabilities, defined benefit pension liabilities) but only if the entity identifies those
amounts when applying another IFRS Accounting Standard. [IFRS 18.59-61]

Those entities that provide financing to customers as a main business activity will classify in the
operating category income and expenses from liabilities that arise from transactions that involve
only the raising of finance related to the provision of financing to customers and make an
accounting policy choice to classify in the operating category or financing category income and
expenses from liabilities that arise from transactions that involve only the raising of finance not
related to the provision of financing to customers. [IFRS 18.65]
An entity has to present totals and subtotals in the statement of profit or loss for operating profit
or loss, profit or loss before financing and income taxes and profit or loss. [IFRS 18.69]

Presentation of line items in the statement of profit or loss is required for: [IFRS 18.75]

(a) revenue, presenting separately interest revenue calculated using the effective interest method
and insurance revenue; (b) operating expenses whereby further separate line items could be
required depending on the selected presentation of operating expenses; (c) share of the profit or
loss of associates and joint ventures accounted for using the equity method; (d) income tax
expense or income; (e) a single amount for the total of discontinued operations; (f) impairment
losses (including reversals of impairment losses or impairment gains) determined according to
Section 5.5 of IFRS 9; (g) gains and losses arising from the derecognition of financial assets
measured at amortised cost; (h) any gain or loss arising from the difference between the fair value
of a financial asset and its previous amortised cost at the date of reclassification from amortised
cost measurement to measurement at fair value through profit or loss; (i) any cumulative gain or
loss previously recognised in other comprehensive income that is reclassified to profit or loss at
the date of reclassification of a financial asset from measurement at fair value through other
comprehensive income to measurement at fair value through profit or loss; (j) insurance service
expenses from contracts issued within the scope of IFRS 17; (k) income or expenses from
reinsurance contracts held; (l) insurance finance income or expenses from contracts issued within
the scope of IFRS 17; (m) finance income or expenses from reinsurance contracts held.

An allocation of profit or loss for the reporting period attributable to non-controlling interests and
owners of the parent needs to be included in the statement of profit or loss. [IFRS 18.76]

Regards the operating category of the statement of profit or loss, an entity must classify and present
expense line items in a way that provides the most useful structured summary of them, by either
the nature or function of the expenses. If any expense line items are classified by function, a single
note should also disclose total amounts for depreciation, amortization, employee benefits,
impairment losses and their reversals, and inventory write-downs and their reversals. [IFRS 18.78
and .83]

Statement presenting Comprehensive Income

An entity is required to present in the statement presenting comprehensive income totals for profit
or loss, other comprehensive income (grouped between those items that will or will not be
reclassified to profit and loss in subsequent periods [IFRS 18.88]) and comprehensive income,
being the total of profit or loss and other comprehensive income. [IFRS 18.86]

An allocation of comprehensive income for the reporting period attributable to non-controlling

interests and owners of the parent also needs to be presented [IFRS 18.87] as well as in each of the
categories of the statement presenting comprehensive income, line items for the share of other
comprehensive income of associates and joint ventures accounted for using the equity method and
other items of other comprehensive income [IFRS 18.89].

An entity needs to either present in the statement presenting comprehensive income or disclose in
the notes, reclassification adjustments relating to components of other comprehensive income and
the amount of income taxes relating to each item of other comprehensive income, including
reclassification adjustments. [IFRS 18.90; IFRS 18.93]

Statement of Financial Position

An entity is required to present a classified statement of financial position, separating current and
non-current assets and liabilities, unless presentation based on liquidity a more useful structured
summary. [IFRS 18.96] In either case, if an asset (liability) category combines amounts that will
be received (settled) after 12 months with assets (liabilities) that will be received (settled) within
12 months, note disclosure is required that separates the longer-term amounts from the 12-month
amounts. [IFRS 18.97] Deferred tax assets (liabilities) are to be classified as current assets
(liabilities) when the classification separating current and non-current assets and liabilities is used
for presentation. [IFRS 18.98]

Current assets are assets that are: [IFRS 18.99]

expected to be realised in the entity's normal operating cycle held primarily for the purpose of
trading expected to be realised within 12 months after the reporting period cash and cash
equivalents (unless restricted).

All other assets are non-current. [IFRS 18.100]

Current liabilities are those: [IFRS 18.101]

expected to be settled within the entity's normal operating cycle held for purpose of trading due
to be settled within 12 months after the reporting period for which the entity does not have the
right at the end of the reporting period to defer settlement beyond 12 months after the reporting
period.

All other liabilities are non-current. [IFRS 18.102]

The line items to be included on the face of the statement of financial position are: [IFRS 18.103]

(a) property, plant and equipment (b) investment property (c) intangible assets (d) goodwill (e)
financial assets (excluding amounts shown under (g), (j), and (k)) (f) portfolios of contracts within
the scope of IFRS 17 that are assets (g) investments accounted for using the equity method (h)
biological assets (i) inventories (j) trade and other receivables (k) cash and cash equivalents (l)
total of assets classified as held for sale and assets included in disposal groups classified as held
for sale in accordance with IFRS 5 (m) trade and other payables (n) provisions (o) financial
liabilities (excluding amounts shown under (m) and (n)) (p) portfolios of contracts within the
scope of IFRS 17 that are liabilities (q) current tax liabilities and current tax assets, as defined in
IAS 12 (r) deferred tax liabilities and deferred tax assets, as defined in IAS 12 (s) liabilities
included in disposal groups classified as held for sale in accordance with IFRS 5 (t) non-
controlling interests (u) issued capital and reserves attributable to owners of the parent.

Statement of Changes in Equity

A separate statement of changes in equity needs to be presented that must show: [IFRS 18.107]

total comprehensive income for the period, showing separately amounts attributable to owners of
the parent and to non-controlling interests the effects of any retrospective application of
accounting policies or restatements made in accordance with IAS 8, separately for each component
of equity reconciliations between the carrying amounts at the beginning and the end of the period
for each component of equity, separately disclosing:

profit or loss other comprehensive income* transactions with owners, showing separately
contributions by and distributions to owners and changes in ownership interests in subsidiaries that
do not result in a loss of control

* An analysis of other comprehensive income by item is required to be presented either in the

statement or in the notes. [IFRS 18.109]

The amount of dividends recognised as distributions and the related amount per share may also be
presented on the face of the statement of changes in equity, or they may be presented in the notes.
[IFRS 18.110]

Notes

Structure

The notes must: [IFRS 18.113]

present information about the basis of preparation of the financial statements and the specific
accounting policies used whereby this can be done in a separate section in the notes disclose any
information required by IFRSs that is not presented in the primary financial statements and
provide additional information that is not presented elsewhere in the primary financial statements
but is relevant to an understanding of any of them.

Notes are presented in a systematic manner and cross-referenced from the face of the primary
financial statements to the relevant note. [IFRS 18.114]

The following disclosures are required by IFRS 18 if not disclosed elsewhere in information
published with the financial statements: [IFRS 18.116]

domicile and legal form of the entity, country of incorporation, address of registered office or
principal place of business; description of the entity's operations and principal activities; if it is
part of a group, the name of its parent and the ultimate parent of the group; and if it is a limited
life entity, information regarding the length of the life.

Management-defined performance measures (MPMs)

IFRS 18 requires an entity to identify its management-defined performance measures as detailed

disclosures need to be included in the notes for them. This should enable user of financial
statements to understand the aspect of financial performance that in management’s view is
communicated by a MPM and how the MPM compares with measures defined by IFRS
Accounting Standards. [IFRS 18.121]

A MPM is a subtotal of income and expenses that: [IFRS 18.117]

is used in public communications outside financial statements; is used to communicate to
investors management’s view of an aspect of the financial performance of the entity as a whole;
and is not listed in IFRS 18 or specifically required by IFRS Accounting Standards.

Generally, an entity should presume that any subtotal of income and expenses shared in public
communications reflects management's perspective of the overall financial performance of the
entity. However, this presumption may be rebutted if necessary. [IFRS 18.119]

An entity will disclose information about its MPMs in a single note to the financial statements.
The note will include a statement that the MPMs provide management’s view of an aspect of the
financial performance of the entity as a whole and are not necessarily comparable with measures
sharing similar labels or descriptions provided by other entities. [IFRS 18.122] The note will also
include for each MPM: [IFRS 18.123-124]

a description of the aspect of financial performance that it communicates, including why

management believes the MPM provides useful information about the entity’s financial
performance; a description of how the MPM is calculated; a reconciliation between the MPM
and the most directly comparable subtotal listed in IFRS 18 or total or subtotal required by IFRS
Accounting Standards, including the income tax effect and the effect on non-controlling interests
for each item disclosed in the reconciliation; and a description of how the entity determined the
income tax effect; explanations on changes made regards the calculation of a MPM or alike.

Capital

An entity discloses information about its objectives, policies, and processes for managing capital.
[IFRS 18.126] To comply with this, the qualitative and quantitative disclosures [IFRS 18.127-129]
include what the entity considers as capital, how external requirements are met, changes from the
previous period, compliance status, and impacts of non-compliance.

Other disclosures
An entity needs to either present in the statement of financial position or the statement of changes
in equity or to disclose in the notes details for each class of shares including the number of shares
authorized and issued as well as a description of each reserve within equity [IFRS 18.130]. In
addition, information about not recognised dividends proposed or declared before the financial
statements were authorized for issue needs to be disclosed in the notes. [IFRS 18.132]

Effective date and transition

Retrospective application of the standard is mandatory for annual reporting periods starting from
1 January 2027 onwards but earlier application is permitted provided that this fact is disclosed.
[IFRS 18.C1]

Reconciliations for each line item in the statement of profit or loss regards the comparative period
immediately preceding the year of initial application need to be disclosed showing how its restated
amount (prepared under IFRS 18) reconciles to the amount disclosed in the previous financial
statements in accordance with IAS 1. [IFRS 18.C2-3]

For the interim financial statements in the year of first-time application of IFRS 18, specific
requirements relating to the totals and subtotals prescribed for the statement of profit or loss as
well as to the reconciliations to the amounts previously recognised in accordance with IAS 1 are
included. [IFRS 18.C5]

A further transitional provision relates to the measurement of investments in associates or joint

ventures held by an entity that is a venture capital organisation or certain other entities. Such an
entity can change to measuring its investment at fair value through profit or loss when applying
IFRS 18 for the first time if the equity method was previously used to measure the shares. [IFRS
18.C7]